UNIVERSITY  OF 
ILLINOIS  LIBRARY 
AT  URBANA  CHAMPAIGN 
STACKS 


MINER  AND  ELWELL  SERIES 


PRINCIPLES 
OF  BOOKKEEPING 

CORPORATION  AND  VOUCHER 
ACCOUNTING 


BY 

GEORGE  W.  MINER 

AND 

FAYETTE  H.  ELWELL,  A.B.,  C.P.A. 

PROFESSOR  OF  ACCOUNTING^  UNIVERSITY  OF  WISCONSIN 


GINN  AND  COMPANY 


BOSTON  •  NEW  YORK  •  CHICAGO  •  LONDON 
ATLANTA  •  DALLAS  •  COLUMBUS  •  SAN  FRANCISCO 


COPYRIGHT,  1912,  1916,  BY 
GEORGE  W.  MINER 

COPYRIGHT,  1918,  BY 

GEORGE  W.  MINER  AND  FAYETTE  H.  ELWELL 

ALL  RIGHTS  RESERVED 
318.6 


HEftc  satftengam  3&r teg 

GINN  AND  COMPANY  •  PRO¬ 
PRIETORS  •  BOSTON  •  U.SA. 


7.0  fa 


PREFACE 

The  large  number  of  business  enterprises  conducted  by  corporations 
has  resulted  in  a  demand  for  a  bookkeeping  text  which  would  cover  the 
basic  and  fundamental  points  connected  with  corporation  accounting. 
The  points  which  distinguish  corporation  accounting  from  sole  pro¬ 
prietorship  and  partnership  accounting  are  explained  in  this  work  in 
some  detail,  and  the  optional  exercises  of  the  text  allow  the  student 
an  opportunity  to  apply  the  principles  presented. 

In  contrast  with  the  various  kinds  of  mercantile  businesses  taken  as 
the  bases  for  the  preceding  laboratory  sets,  the  manufacturing  business 
is  used  in  this  text  as  the  basis  for  a  practice  set  so  that  the  student 
may  become  familiar  with  records,  books,  accounts,  and  statements  suited 
for  this  type  of  industry. 

The  voucher  system  of  recording  commodities  purchased  is  illustrated 
and  used  in  Set  IX.  Students  will  find  no  difficulty  in  mastering  its 
basic  principles  or  in  understanding  the  application  of  such  variations 
of  the  system  as  may  be  found  in  practice. 

In  the  last  chapter  of  the  text  the  authors  give  a  descriptive  intro¬ 
duction  to  the  subject  of  cost  accounting,  and  touch  upon  those  points 
with  which  the  cost  clerk  should  be  most  familiar. 

The  authors  wish  to  acknowledge  their  indebtedness  to  the  follow¬ 
ing  persons  for  helpful  suggestions  and  criticisms  of  the  manuscript: 
Henry  R.  Hatfield,  Professor  of  Accounting,  University  of  California; 
Stephen  W.  Gilman,  Professor  of  Business  Administration,  University 
of  Wisconsin;  John  R.  Wildman,  Professor  of  Accounting,  New  York 
University ;  J.  A.  Book,  Head  of  the  Commercial  Department,  South 
Division  High  School,  Milwaukee,  Wisconsin;  Ivan  E.  Chapman,  Head 
of  the  Commercial  Department,  Northwestern  High  School,  Detroit, 
Michigan ;  Elizabeth  Campbell,  Commercial  Department,  High  School, 
Somerville,  Massachusetts ;  Myron  F.  Palmer,  Principal  of  Bay  Path 
Institute,  Springfield,  Massachusetts. 

Business  men,  bookkeepers,  and  certified  public  accountants  have 
also  been  consulted  freely  regarding  many  features  of  the  text,  and 
their  practical  suggestions  have  added  to  the  working  value  of  the  book. 


VA 


iii 


CONTENTS 


CHAPTER  PAGE 

XXXIII.  Introduction  to  Corporate  Organization  ....  417 

XXXIY.  The  Stock  System . 421 

XXX Y.  The  Stock  Books . 424 

XXXVI.  Opening  the  Financial  Books . 429 

XXXVII.  Disposition  of  New  Profit . 434 

XXXVIII.  Corporation  Bonds . 437 

XXXIX.  Revenue  Accounts  and  Operating  Statement  of 

a  Manufacturing  Business . 441 

XL.  Set  IX.  Chair-Manufacturing  Business . 449 

XLI.  The  Conversion  of  a  Partnership  into  a  Corporation  477 

XLII.  Introduction  to  Cost  Accounting . 486 


VA 


v 


Digitized  by  the  Internet  Archive 
in  2017  with  funding  from 

University  of  Illinois  Urbana-Champaign  Alternates 


https://archive.org/details/principlesofbookOOmine 


LIST  OF  EXERCISES 


Exercise  80.  Introduction  to  Corporate  Organization . 420 

Exercise  81.  The  Stock  System . 423 

Exercise  82.  Opening  the  Financial  Books . 432 

Exercise  83.  Disposition  of  Net  Profit . 436 

Exercise  84.  Corporation  Bonds . 440 

Exercise  85.  Manufacturing  Revenue  Accounts  and  Operating  Statement  .  446 
Exercise  86.  Conversion  into  a  Corporation . 481 


VA 


vii 


CHAPTER  XXXIII 


INTRODUCTION  TO  CORPORATE  ORGANIZATION 

Definition.  A  corporation  has  been  defined  as  "an  artificial  being, 
invisible,  intangible,  and  existing  only  in  contemplation  of  law  ”  (Chief 
Justice  Marshall,  4  Wheaton,  518).  A  corporation  is  formed  only 
through  process  of  law,  by  a  number  of  persons  associating  themselves 
for  the  purpose  of  conducting  a  legal  business.  Three  is  the  usual 
number  prescribed  by  law  as  the  minimum  number  of  persons  who 
may  form  a  corporation. 

Formation  of  Corporations.  The  corporation  laws  of  each  state  specify 
the  manner  in  which  a  corporation  may  be  formed,  and  they  are  the 
primary  sources  of  power  under  which  a  corporation  operates. 

In  a  few  states  corporations  for  certain  purposes  secure  their  charters 
only  through  special  acts  of  the  legislature. 

Since  the  corporation  laws  of  the  different  states  vary  greatly,  general 
statements  cannot  be  made  relative  to  the  specific  requirements  to  be 
followed  in  organizing  a  corporation  in  any  state.  The  usual  procedure 
may  be  summarized  as  follows : 

The  persons  desiring  to  form  a  corporation  prepare  written  articles 
of  association,  containing  the  facts  required  by  the  corporation  law. 
These  articles  are  signed  and  acknowledged,  and  then  they  are  sent  to 
the  proper  state  official.  In  some  states  the  articles  of  association  are 
prepared  in  duplicate :  one  copy  is  retained  in  the  state  official’s  office, 
and  the  second,  bearing  the  approval  of  the  state  official,  must  be  filed 
in  the  designated  county  official’s  office.  The  publication  of  notices 
relating  to  the  application  for  incorporation,  the  payment  of  incorpora¬ 
tion  and  filing  fees,  and  all  other  requirements  of  the  state  law  must 
be  satisfied. 

Charter.  If  the  provisions  of  the  statutes  as  to  the  purpose  and  the 
method  of  organization  are  fulfilled,  the  corporation  receives  a  charter. 
The  charter  is  frequently  a  formal  certificate  of  incorporation  issued  by 
a  state  official,  or  it  may  be  an  authorization  from  the  state  in  some 
other  form.  In  New  York,  for  example,  the  application  to  incorporate, 
approved  by  the  Secretary  of  State,  becomes  the  charter.  The  usual 
data  contained  in  a  charter  relates  to  the  name,  capitalization,  location, 

417 


418 


PRINCIPLES  OF  BOOKKEEPING 


purposes,  and  duration  or  life  of  the  corporation.  The  charter  is  also 
considered  as  including  the  law  under  which  the  corporation  is  organized. 

The  persons  who  petition  the  state  officials  for  a  charter  are  known 
as  the  incorporators.  By  the  act  of  subscribing  to  the  capital  stock  they 
also  become  stockholders.  After  incorporation,  a  subscriber  or  the 
recorded  purchaser  of  the  capital  stock  is  known  as  a  stockholder. 

By-laws.  The  by-laws  of  a  corporation  are  the  rules  adopted  by  the 
stockholders  relating  to  the  detailed  management  of  the  business.  It  is 
a  fundamental  principle  of  corporation  law  that  the  provisions  of  the 
by-laws  must  not  conflict  with  the  charter  of  the  corporation  or  with 
the  state  laws. 

Kinds  of  Corporations.  Corporations  may  be  divided  into  two  general 
groups : 

1.  Corporations  not  organized  for  profit,  such  as  colleges,  churches, 
and  clubs. 

2.  Corporations  organized  for  profit,  of  which  there  are  three  kinds, 
according  to  the  purposes  for  which  the  organization  was  formed,  — 
general  business,  public  utility,  and  financial. 

The  general  business  corporation  class  includes  the  usual  manufac¬ 
turing,  trading,  and  mercantile  companies ;  the  public  utility  corpora¬ 
tion  class  usually  includes  railroads,  water,  electric,  gas,  and  telephone  s 
companies  ;  while  the  financial  class  generally  includes  banks,  trust  com-  I 
panies,  insurance  companies,  and  building  and  loan  associations.  The 
majority  of  states  have  different  laws  for  the  organization  and  the 
operation  of  these  different  classes  of  corporations.  In  this  text  atten¬ 
tion  is  given  only  to  the  general  business  corporation  group. 

Domestic  and  Foreign  Corporation  Laws.  A  state  frequently  has  two 
general  business  corporation  laws,  —  the  first  relating  to  corporations 
organized  within  the  state  and  known  as  the  domestic  corporation  law, 
the  second  relating  to  corporations  organized  in  other  states  but  trans¬ 
acting  business  within  this  state  and  known  as  the  foreign  corporation 
law.  The  rights  and  the  obligations  of  domestic  and  foreign  corporations, 
as  stated  in  these  laws,  often  vary  greatly,  and  when  any  question , 
arises,  reference  should  always  be  made  to  the  appropriate  state  law. 

Names  of  Corporations.  The  statutes  of  some  states  prescribe  that 
the  name  of  the  corporation  must  contain  certain  words.  For  example, 
it  is  often  compulsory  for  the  name  of  a  corporation  to  start  with  the 
word  The  and  end  with  the  word  Company.  In  other  state  laws  it  is 
provided  that  the  word  Incorporated  or  the  abbreviation  Inc.  must  be 
stated  in  connection  with  the  company  name.  In  the  majority  of  states 
it  is  provided  that  the  names  of  corporations  may  not  be  the  same  as 


INTRODUCTION  TO  CORPORATE  ORGANIZATION  419 


sole  proprietorships,  partnerships,  or  corporations  already  engaged  in  busi¬ 
ness  within  the  state,  and  cannot  be  so  similar  as  to  cause  confusion 
in  the  mind  of  the  general  public. 

General  Powers  of  a  Corporation.  The  statutes  grant  to  every  business 
corporation  certain  general  powers.  While  the  general  powers  vary 
slightly  in  the  different  states,  those  generally  conferred  may  be  stated 
as  follows: 

(a)  To  have  succession  ( d )  To  purchase,  to  hold,  and  to  convey 

( b )  To  sue  or  to  be  sued  under  lands  and  chattels 

its  corporate  name  (e)  To  elect  officers  and  to  appoint  agents 

(c)  To  use  a  common  seal  (/)  To  make  by-laws 

Advantages  of  Corporate  Organization.  The  advantages  of  the  cor¬ 
porate  organization  are  as  follows: 

1.  The  existence  of  the  corporation  is  not  dependent  upon  the  life 
or  the  condition  of  any  of  its  stockholders. 

2.  The  corporation  as  a  legal  person,  and  not  the  stockholders  as 
individuals,  acts  as  a  party  in  legal  cases. 

3.  The  corporation  may  deal  in  real  estate  as  a  legal  person. 

4.  The  directors  assume  definite  responsibility,  and  their  orders  gen¬ 
erally  result  in  a  unification  and  a  continuance  of  acts  and  policies 
highly  advantageous  to  business. 

5.  The  liability  of  stockholders  for  corporate  indebtedness  generally 
is  limited  to  the  stock  subscription. 

6.  Advantages  1  and  5  combine  in  giving  corporations  a  decided 
advantage  over  partnerships  in  the  securing  of  capital  investments. 

The  Disadvantages  of  Corporate  Organization.  The  disadvantages  of 
the  corporate  organization,  slight  in  comparison  with  the  advantages 
given,  are  as  follows : 

1.  The  fees  and  the  franchise  taxes  must  be  paid. 

2.  Foreign  corporation  laws  are  often  stringent. 

3.  The  limited  liability  of  the  stockholders  and  the  legal  artificiality 
of  the  corporation  sometimes  prevent  the  extension  of  credit  necessary 
for  the  safe-conduct  of  the  corporation’s  business. 

4.  This  type  of  organization  is  unsuited  for  professions  in  which 
individual  skill  and  individual  responsibility  are  the  important  factors. 
Examples  are  the  medical,  the  legal,  and  the  accounting  professions. 

Some  business  men  claim  that  the  requirement  of  the  majority  of 
the  states  demanding  an  annual  report  to  be  filed  with  a  state  official 
is  a  disadvantage.  On  the  other  hand,  a  constantly  increasing  number 
of  men  of  affairs  believe  that  a  detailed  annual  financial  report,  prepared 


420 


PRINCIPLES  OF  BOOKKEEPING 


or  approved  by  a  certified  public  accountant,  offers  distinct  advantages 
to  both  the  stockholders  and  the  corporation  itself. 

The  following  exercise  is  suggested  #s  the  basis  for  a  recitation. 

Exercise  80.  Introduction  to  Corporate  Organization 

1.  Define  a  corporation. 

2.  Define  a  charter. 

3.  What  are  by-laws  ? 

4.  Can  the  by-laws  be  in  conflict  with  the  statutes  or  the  charter? 

5.  What  are  the  two  general  kinds  of  corporations? 

6.  What  general  class  of  corporations  in  your  state  would  be  sub¬ 
ject  to  the  domestic  corporation  law  ?  to  the  foreign  corporation  law  ? 

7.  What  is  the  rule  of  law  relative  to  the  name  of  a  corporation 
duplicating  or  closely  resembling  the  name  of  another  business  ? 

8.  State  six  powers  of  a  corporation. 

9.  State  six  advantages  of  corporate  organization  over  partnership 
organization. 

10.  Summarize  the  disadvantages  of  corporate  organization. 


CHAPTER  XXXIV 


THE  STOCK  SYSTEM 

Capital  Stock.  The  Capital  Stock  account  of  a  corporation  records 
the  investment  in  the  business,  and  in  this  respect  corresponds  to  the' 
proprietor’s  investment  account  in  a  sole  proprietorship  and  to  the 
partners’  investment  accounts  in  a  partnership. 

Terms  Used.  Several  different  terms  are  used  in  referring  to  the 
authorization,  the  subscription,  the  payment,  and  the  ownership  of 
the  capital  stock  of  a  corporation.  The  authorized  capital  stock  is  the 
maximum  amount  which  may  be  issued.  The  subscribed  capital  stock 
is  the  stock  which  is  subscribed.  The  paid-up  capital  stock  is  the  stock 
paid  for  by  stockholders.  The  majority  of  state  laws  require  certain 
portions  of  the  authorized  capital  stock  to  be  subscribed  and  paid  for 
before  the  corporation  has  legal  existence.  Only  when  authorized  capi¬ 
tal  stock  is  subscribed  and  paid  for  in  full  do  the  three  terms  refer  to 
the  same  amount.  Unsubscribed  capital  stock  applies  to  the  portion  of 
the  authorized  capital  stock  not  subscribed.  Treasury  stock  is  capital 
stock  which,  having  been  previously  subscribed  and  paid  for  by  stock¬ 
holders,  is  purchased  by  the  corporation  from  the  stockholders,  or 
donated  to  the  corporation  by  the  stockholders.  Outstanding  capital 
stock  represents  the  subscribed  capital  stock,  or  the  difference  between 
the  subscribed  capital  stock  and  the  treasury  stock.  Capital  stock  is 
usually  issued  as  nonassessable.  If  it  is  not,  assessments  may  be  levied 
whenever  the  directors  deem  it  advisable. 

Share.  A  share  is  one  of  the  units  of  equal  value  into  which  the 

capital  stock  of  a  corporation  is  divided,  and  generally  grants  to  its 

owner,  called  the  stockholder,  the  rights  of  voting  in  the  stockholders’ 
meetings,  and  of  sharing  in  the  profits  earned  and  in  the  assets  available 
for  distribution  upon  dissolution.  The  amount  of  capital  stock  divided 
by  the  number  of  shares  issued  gives  the  par  value  of  a  share.  In 
practice  the  par  value  of  a  share  is  usually  decided  upon  first,  and  then 
the  total  amount  of  capital  deemed  necessary  is  divided  by  the  par 

value  in  order  to  determine  the  number  of  shares  to  issue.  A  mini¬ 

mum  amount  which  may  be  used  for  the  par  value  of  a  share  is 
designated  in  some  of  the  state  laws. 

421 


422 


PRINCIPLES  OF  BOOKKEEPING 


Stock  Certificate.  Ownership  of  a  share  of  stock  is  evidenced  by  a 
stock  certificate,  although  one  stock  certificate  may  be  issued  for  the 
total  number  of  shares  owned  by  a  stockholder.  A  stockholder  can¬ 
not  claim  ownership  of  any  particular  property  belonging  to  the  corpo¬ 
ration,  since  he  has  a  right  only  to  that  proportion  of  all  the  corporate 
property  which  the  shares  he  owns  bear  to  the  total  shares  outstanding. 

Classes  of  Stock.  The  varying  conditions  and  limitations  under  which 
stock  is  issued  to  the  stockholders  of  a  corporation  give  rise  in  some 
states  to  several  distinct  classes  of  stock.  The  classes  in  general  use 
are  known  as  common  stock  and  preferred  stock. 

Common  Stock.  Common  stock  carries  the  same  rights  and  obligations 
to  all  its  owners.  The  use  of  the  words  capital  stock  without  quali¬ 
fication  as  to  kind  implies  that  the  stock  of  the  corporation  is  all 
common  stock. 

Preferred  Stock.  Preferred  stock  grants  the  owners  thereof  preferences 
over  the  common  stockholders  as  to  dividends,  voting,  or  distribution 
of  assets  upon  dissolution. 

The  laws  of  the  different  states  vary  so  widely  regarding  the  meaning 
and  the  issuance  of  preferred  stock  that  in  every  case  involving  de¬ 
tailed  knowledge  of  the  facts  the  specific  state  law  under  consideration 
should  be  studied. 

The  right  to  share  in  the  accrued  profits  before  any  allowance  is 
made  for  the  dividends  on  the  common  stock  is  one  general  preference 
granted  the  holders  of  the  preferred  stock.  The  dividend  rate  on  pre¬ 
ferred  stock  is  usually  fixed  at  the  time  of  issue.  Thus  an  issue  of 
7  °]0  preferred  stock  means  that  the  dividend  rate  on  this  stock  is  7% 
of  the  par  value  thereof. 

The  dividends  on  preferred  stock  may  be  either  cumulative  or  non- 
cumulative,  and  the  stock  is  thus  known  as  cumulative  preferred  stock 
or  noncumulative  preferred  stock,  respectively.  If  the  dividends  on 
cumulative  preferred  stock  are  not  paid  for  one  or  more  years,  they 
cumulate  and  must  be  paid  in  full  before  other  kinds  of  stock  receive 
any  portion  of  the  profits. 

If  dividends  on  noncumulative  preferred  stock  are  not  paid  for  the 
period,  they  lapse  and  thus  do  not  become  a  charge  against  the  earn¬ 
ings  of  future  periods. 

Book  Value  and  Market  Value.  The  value  of  the  proprietary  interest 
in  a  corporation  may  differ  materially  from  the  outstanding  capital  stock, 
owing  to  operating  profits  or  losses,  the  difference  between  the  book 
values  of  assets  and  liabilities  and  their  actual  values,  and  present  con¬ 
ditions  and  future  prospects  of  supply  and  demand  for  the  product  of  the 


THE  STOCK  SYSTEM 


423 


business.  The  market  value  of  a  share  of  stock  may  therefore  differ  from 
the  par  value  and  from  the  book  value  of  the  share.  One  of  the  pur¬ 
poses  of  recording  values  is  to  learn  the  financial  status  of  a  business, 
and  while  it  may  be  impossible  to  have  the  book  values  and  the  actual 
values  correspond,  every  effort  should  be  made  to  prevent  a  wide  varia¬ 
tion  between  the  two.  In  order  to  avoid  the  present  practice  of  placing 
a  par  value  on  a  share  of  stock  at  the  time  of  organization  and  then 
seldom  using  it  again,  some  state  laws  now  allow  corporations  to  be 
organized  with  no  par  value  of  stock  stated.  The  subscribers  decide 
upon  the  amount  to  be  paid  for  each  share  at  the  time  of  incorporation 
and  thereafter  the  value  of  a  share  is  determined  by  dividing  the  net 
assets  by  the  number  of  shares  of  stock  outstanding.  Undoubtedly 
within  a  few  years  corporations  with  capital  stock  of  no  par  value 
will  come  to  be  a  common  occurrence. 

Corporate  Administration.  Stockholders  are  the  owners  of  the  capital 
stock  of  a  corporation.  Upon  incorporation  and  annually  thereafter  the 
stockholders  meet  and  elect  directors  of  the  corporation,  in  accordance 
with  the  provisions  of  their  by  laws. 

Stockholders  are  allowed  a  vote  for  each  share  of  stock  owned,  and 
may  vote  in  person  or  by  proxy. 

The  elected  directors  are  known  as  the  board  of  directors,  and  they 
direct  the  management  and  the  general  administration  of  the  corpora¬ 
tion’s  affairs. 

The  directors  of  a  corporation  elect  the  officers  of  the  corporation. 
The  usual  officers  are  the  president,  vice  president,  secretary,  and 
treasurer.  The  board  of  directors  also  has  the  power  to  appoint  agents 
to  transact  business  for  the  corporation. 

Cumulative  Voting.  This  is  a  method  of  voting  prescribed  by  some 
state  laws,  and  possible  under  others,  the  object  of  which  is  to  place 
representatives  of  the  minority  stockholders  upon  the  board  of  directors. 

The  following  exercise  is  suggested  as  the  basis  for  a  recitation. 

Exercise  81.  The  Stock  System 

1.  Give  a  definition  of  the  following  terms:  capital  stock,  authorized 
capital  stock,  subscribed  capital  stock,  paid-up  capital  stock,  unsub¬ 
scribed  capital  stock,  treasury  stock,  a  share,  a  stockholder,  common 
stock,  preferred  stock,  cumulative  preferred  stock,  noncumulative 
preferred  stock,  cumulative  voting. 

2.  What  are  the  general  rights  of  a  stockholder  ? 

3-  Distinguish  between  the  book  value  and  the  market  value  of  stock. 


CHAPTER  XXXV 


THE  STOCK  BOOKS 

The  corporate  stock  system  necessitates  the  use  of  certain  books  in 
which  all  transactions  of  the  system  may  be  recorded.  The  books  kept 
for  this  purpose  are  referred  to  as  the  stock  books  of  the  corporation 
and  should  be  distinguished  at  all  times  from  the  financial  records  of 
the  company.  The  stock  records  contain  details  of  official  transactions 
and  data  relative  to  the  purchase,  the  payment,  the  ownership,  and 
the  transfer  of  stock,  and  the  payment  of  dividends  thereon.  Some 
of  the  financial  transactions  occurring  in  connection  with  these  data 
may  appear  in  the  financial  records,  in  summary  form,  but  the  details 
of  all  transactions  should  be  found  in  the  appropriate  stock  record. 

Minute  Book.  This  book  contains  a  record  of  all  the  meetings  of 
the  stockholders  or  of  the  board  of  directors,  and  is  usually  kept  by 
the  secretary  of  the  corporation. 

Subscription  Book  or  List.  This  book  or  list  contains  the  date  of 
record,  the  names  and  the  addresses  of  the  subscribers,  the  number  of 
shares,  and  the  amount  subscribed  for  by  each  stockholder. 


We,  the  undersigned,  do  hereby  subscribe  for  and  agree  to  take  the  number  of  shares 
of  the  Madison  Chair  Company’s  stock  set  opposite  our  respective  names: 

Number 

Date 

Name  of  Stockholder 

Address 

of  Shares 

Amount 

Feb. 

1 

George  Clark 

Madison,  Wis. 

175 

17500 

1 

F.  M.  Williams 

Madison,  Wis. 

175 

17500 

1 

E.  M.  Hadley 

Madison,  Wis. 

175 

17500 

1 

F.  W.  Kramer 

Madison,  Wis. 

175 

17500 

1 

W.  R.  Wood 

Madison,  Wis. 

175 

17500 

1 

John  R.  Inman 

Sheboygan,  Wis. 

125 

12500 

100000 

FORM  OF  SUBSCRIPTION  BOOK  OR  LIST 


Installment  Book  or  List.  This  book  or  list  is  used  when  subscrip¬ 
tions  are  paid  in  installments,  and  contains  the  number  and  amount  of 
each  installment,  when  it  is  due,  and  the  names  of  the  subscribers. 

424 


THE  STOCK  BOOKS 


425 


Installment  Scrip  Book.  This  is  a  book  of  blank  receipts  to  be  filled 
out  and  signed  by  the  secretary  and  the  treasurer  as  the  installments 
are  paid. 

Installment  Ledger.  This  book  is  kept  by  some  corporations  in  order 
to  record  temporarily  the  accounts  of  subscribers  paying  for  stock  on 
the  installment  basis.  A  subscriber  is  charged  with  the  amount  of  each 
installment  when  it  becomes  due,  and  is  credited  with  installment  pay¬ 
ments  as  evidenced  by  the  installment  scrip  book. 

Stock-Certificate  Book.  This  book  contains  blank  certificates,  with 
stubs,  to  be  filled  out  and  signed,  usually  by  the  president  and  the 
secretary  of  the  corporation.  For  convenience,  these  certificates  are 
numbered  consecutively.  The  stockholder  frequently  signs  the  stub  as 
a  receipt  when  the  certificates  are  issued  to  him. 

A  bill  of  sale  in  blank  is  always  printed  on  the  back  of  the  certifi¬ 
cate  to  facilitate  the  sale  and  the  transfer  of  stock. 

A  separate  stock-certificate  book  should  be  kept  for  each  kind  of 
stock  issued.  The  stubs  of  the  stock-certificate  book  usually  serve  as 
a  posting  medium  to  the  stock  ledger. 

Stock  Ledger.  This  book  is  a  ledger  which,  according  to  one  method  of 
keeping  it,  shows  the  number  of  shares  of  stock  held  by  each  stockholder. 


• 

Date 

To  Whom  Transferred 

Number  of 
Certificate 

N  umber 
of  Shares 

Date 

From  Whom  Transferred 

Number  of 
Certificate 

Number 
of  Shares 

STOCK-LEDGER  RULING 


Data  for  the  accounts  with  stockholders  are  obtained  from  the  stock- 
certificate  and  the  stock-transfer  book,  the  accounts  being  credited 
with  the  shares  issued  and  debited  with  the  shares  transferred.  The 


426 


Os 


•J2 


& 


STOCK-CERTIFICATE  BOOK 


THE  STOCK  BOOKS 


427 


balance  of  each  individual  stockholder’s  account  indicates  the  number 
Df  shares  in  his  possession,  while  the  balance  of  the  stock  ledger  kept 
in  this  manner  should  agree  with  the  total  shares  of  the  capital  stock 
outstanding.  Some  of  the  state  corporation  laws  prescribe  the  data  to 
be  contained  in  the  stock  ledger,  and  strict  compliance  with  the  pro¬ 
visions  of  such  laws  should  be  made  by  all  corporations  subject  to 
them.  There  are  various  other  methods  of  keeping  the  stock  ledger. 
The  chief  among  them  is  the  use  of  amounts,  as  well  as  the  number 
of  shares,  on  a  double-entry  basis,  the  making  of  the  stock  ledger  self¬ 
balancing,  and  the  using  of  the  Capital  Stock  account  in  the  general 
Ledger  as  a  controlling  account,  with  the  stock  ledger  as  a  subsidiary 
to  that  account.  Separate  stock  ledgers  should  be  kept  for  each  kind 
of  stock  issued. 

Stock-Transfer  Book.  This  book  contains  blank  transfers  with  stubs 
and  is  used  to  record  the  transfer  of  stock  from  one  person  to  another. 
It  evidences  ownership  of  the  stock  mentioned  therein,  before  stock 
certificates  are  issued.  In  some  corporations  a  stock-transfer  book  is 
maintained  only  at  the  office  of  the  company,  while  in  other  corpora¬ 
tions,  particularly  those  whose  stock  is  transferred  frequently,  transfer 
agents  are  appointed  in  different  cities  and  transfer  books  are  kept  at 
each  office.  The  form  of  the  transfer  book  may  vary  to  conform  to  the 
method  of  transfer  used  in  different  corporations,  but  the  vital  infor¬ 
mation  of  such  a  record  is  shown  in  the  following  illustration.  In 
some  states  the  laws  prescribe  the  data  to  be  recorded  in  the  stock- 
transfer  book,  and  a  state  official  prescribes  the  form  of  the  book.  The 
data  from  the  stock-transfer  book  are  recorded  on  the  stub  of  the  stock- 
certificate  book,  and  from  there  postings  are  made  to  the  stock  ledger. 


No.  of 
Certificate 
canceled 


Z 


No.  of  New 
Certificate 
issued 


/  2- 


Shares 

Ledger 

canceled 

Folio 

TRANSFERRED  BY 

/  0 

z  , 

New  Shares 

issued 

TO 

/  o 

For  Value  Received,  do  hereby  assign  and 

transfer  to 

’r& ’.ZbtZZ 

Shares  of  the  Capital  Stock  of 


TT/?e  Madison  Chair  Co.,  Madison,  JVis. 


Witness^rzsy  hand  and  seal,  this  Z^C'day 
of  ■ 


Sealed  and  delivered  in 
the  presence  of 


i-3.] 


STOCK-TRANSFER  BOOK 


428 


PRINCIPLES  OF  BOOKKEEPING 


Dividend  Book.  This  book  shows  the  names  of  the  stockholders,  the 
number  of  shares  of  stock,  the  par  value  of  each  share,  the  amount  of 
dividend  due  each  stockholder,  and  the  date  on  which  the  dividend 
was  paid. 

The  stockholder  sometimes  receipts  for  dividends  in  the  dividend  book. 
When  payment  is  by  dividend  check,  this  is,  of  course,  unnecessary. 


First  Semiannual  Dividend,  Aug.  1,  1917,  8% 


Stockholder 

Certifi¬ 
cate  No. 

Number 
of  Shares 

Par  Value 
per  Share 

Amount  of 
Dividend 

When  Paid 

Signature  for 
Payment 

George  Clark 

1 

175 

100 

525 

Aug. 

5 

George  Clark 

F.  M.  Williams 

2 

175 

100 

525 

5 

F.  M.  Williams 

E.  M.  Hadley 

3 

175 

100 

525 

5 

E.  M.  Hadley 

F.  W.  Kramer 

4 

175 

100 

525 

5 

F.  W.  Kramer 

W.  R.  Wood 

5 

175 

100 

525 

5 

W.  R.  Wood 

John  R.  Inman 

6 

125 

100 

375 

5 

John  R.  Inman 

FORM  OF  DIVIDEND  BOOK 


I 


CHAPTER  XXXVI 


OPENING  THE  FINANCIAL  BOOKS 

Names  of  Accounts  for  Recording  Capital  Stock.  If  all  the  capital 
stock  of  a  corporation  is  common  stock,  the  investment  account  is  called 
.  Capital  Stock ,  but  if  two  or  more  kinds  of  capital  stock  are  issued, 
separate  accounts  are  maintained  for  each  kind  of  stock.  Proper  account 
names  may  be  obtained  in  each  case  by  prefixing  the  name  of  the  kind 
of  stock  to  the  term  capital  stock.  Thus,  if  a  corporation  issues  both 
common  and  preferred  stock,  two  accounts  are  kept,  one  with  Common 
Capital  Stock  and  the  other  with  Preferred  Capital  Stock.  Separate 
subscription  accounts  for  each  kind  of  stock  should  also  be  kept.  The 
entries  in  the  following  discussion  all  refer  to  common  stock,  but  the 
same  principles  apply  to  the  recording  of  other  stock  issues. 

A  Completely  Subscribed  Issue.  When  a  corporation  is  formed  and 
the  entire  amount  of  capital  stock  is  subscribed  and  paid  for  in  cash, 
there  are  two  ways  of  recording  the  transactions  in  the  financial  records : 
in  the  first  method,  Cash  is  debited  directly  with  the  amount  of  capital 
stock ;  in  the  second  method,  an  account  with  Subscription  is  used  as 
an  intermediary  account.  To  illustrate  these  two  methods,  assume  the 
capital  stock  to  be  $75,000.  The  entries  for  the  two  methods  are,  in 
order,  as  follows: 


1 

Cash 

75000 

Capital  Stock 

Capital  stock  subscribed  and  paid  in  full. 

75000 

2 

Subscription 

75000 

Capital  Stock 

Per  subscription  list. 

75000 

Cash 

75000 

Subscription 

Payment  of  subscription  in  full. 

75000 

The  capital  stock  may  be  subscribed  in  full,  and  only  a  portion  of 
the  subscribed  amount  paid.  In  this  case,  assuming  $25,000  of  the 
$75,000  subscription  to  capital  stock  to  be  paid,  the  journal  entries  are: 

429 


430 


PRINCIPLES  OF  BOOKKEEPING 


Subscription 

Capital  Stock 

Per  subscription  list. 

Cash 

Subscription 

Portion  of  subscription  paid. 


'5000 


25000 


'5000 


25000 


A  Partially  Subscribed  Issue.  Frequently  only  a  portion  of  the 
authorized  capital  stock  is  subscribed,  and  only  a  part  of  the  subscrip¬ 
tion  paid.  There  are  two  methods  of  recording  these  facts.  The  first, 
and  the  one  preferred,  is  to  make  entries  corresponding  to  those  just 
made  in  the  preceding  case.  Thus,  assuming  the  authorized  capital 
stock  to  be  $75,000,  of  which  $50,000  is  subscribed  and  $25,000  paid, 
the  entries  are  : 


Subscription 

Capital  Stock 

Per  subscription  list. 

Cash 

Subscription 

Portion  of  subscription  paid. 


50000 


50000 


25000 


25000 


In  the  Capital  Stock  account  a  memorandum  should  be  made  under¬ 
neath  the  account  name,  giving  appropriate  details  of  the  authorized 
capital  stock.  If  the  authorized  capital  issue  of  $75,000  is  divided 
into  750  shares  of  $100  each,  the  Capital  Stock  account  heading  would 
appear  as  follows : 

Capital  Stock 

Authorized  capital,  750  shares,  $100  par  value,  $75,000 

When  financial  statements  are  compiled  for  any  purpose,  the  fact 
that  the  capital  stock  outstanding  is  only  a  portion  of  the  authorized 
issue  should  be  clearly  shown.  In  the  case  under  consideration  the 
capital  stock  item  appears  as  follows : 


Capital  Stock 

Authorized  $75000 

Unsubscribed  25000 

Outstanding  $50000 


That  portion  of  the  outstanding  capital  stock  unpaid  is  reflected  by 
the  balance  of  the  Subscription  account,  which  appears  among  the 
assets  of  the  corporation.  Under  the  majority  of  subscription  agree¬ 
ments  it  represents  a  definite,  collectible  debt  due  the  corporation. 


OPENING  THE  FINANCIAL  BOOKS 


431 


The  second  method  of  recording  the  fact  that  only  a  portion  of  the 
authorized  capital  stock  is  subscribed  and  only  a  part  of  the  subscrip¬ 
tion  is  paid  is  to  open  an  account  with  Unsubscribed  Capital  Stock  for 
the  proper  amount.  Using  the  same  case  as  before,  the  journal  entries 
would  be  as  follows: 


Subscription 

50000 

Unsubscribed  Capital  Stock 

25000 

Capital  Stock 

75000 

To  open  the  Capital  Stock  account,  re¬ 
cording  both  the  amounts  subscribed  and 
unsubscribed. 

Cash 

25000 

Subscription 

Portion  of  subscription  paid. 

. 

25000 

Since  the  Unsubscribed  Capital  Stock  is  not  an  asset  account  but 
only  a  record  of  the  right  of  the  corporation  to  issue  more  stock,  the 
amount  of  such  stock  should  be  subtracted  from  the  authorized  issue 
in  preparing  the  financial  statements  and  only  the  amount  of  capital 
stock  outstanding  should  be  extended.  The  same  form  may  be  used 
for  this  purpose  as  is  used  in  illustrating  the  first  method. 

As  portions  of  the  unsubscribed  stock  are  subscribed,  the  Subscrip¬ 
tion  account  is  debited  and  the  Unsubscribed  Stock  account  is  credited. 
The  Unsubscribed  Stock  account,  therefore,  balances  when  all  the  capi¬ 
tal  stock  is  subscribed.  The  Subscription  account  balances  when  pay¬ 
ment  is  made  for  all  the  subscribed  stock. 

Installment  Payments.  Stock  subscriptions  are  often  paid  in  install¬ 
ments.  When  the  first  installment  is  due,  the  journal  entry,  assuming 
the  amount  of  the  installment  to  be  $5000,  is  as  follows : 


Installment  No.  1 
Subscription 

Portion  of  installment  due  on  first  install¬ 
ment,  per  installment  book. 


5000 


5000 


If  payments  on  this  installment  totaling  $4000  are  received,  the 
entry  is  as  follows : 


Cash 

Installment  No.  1 

Cash  received  on  this  installment,  per 
installment  scrip  book. 


4000 


4000 


432 


PRINCIPLES  OP  BOOKKEEPING 


Installment  accounts  are  opened  in  sequence  as  installments  become 
due,  and  each  is  closed  when  the  respective  payments  have  been  made. 
A  record  is  also  kept  in  the  installment  book,  and  scrip  is  issued  for 
installment  payments  as  described  on  page  425. 

The  by-laws  of  corporations  generally  provide  that  if  installments  on 
stock  subscriptions  are  not  paid,  the  payments  already  made  are  for¬ 
feited  thereby  to  the  corporation.  The  disposition  of  the  subscribed 
stock  is  a  matter  to  be  decided  by  the  directors  of  the  corporation. 

In  the  illustrations  used  in  this  chapter  all  entries  are  expressed  in 
journal  form,  though  cash  entries  may  be  made  just  as  accurately  in  the 
cashbook.  All  payments  for  subscriptions  are  assumed  to  be  by  cash. 

Organization  Expense.  In  organizing  corporations  there  are  frequently 
many  expenses  incurred  for  which  nothing  tangible  is  received,  and 
yet  such  items  cannot  be  charged  equitably  against  the  profits  of  the 
first  fiscal  period.  Thus,  expenses  for  investigating  proposed  locations 
•  for  factories,  expenses  for  investigating  the  processes  or  the  methods 
employed  by  different  companies,  legal  fees,  and  the  cost  of  promotion 
are  items  often  incurred  before  a  corporation  is  in  actual  operation. 
Such  items  are  usually  charged  to  an  account  called  Organization 
Expense,  and  a  portion  of  it,  called  Organization  Expense  Written 
Off \  is  charged  against  the  profits  of  each  period.  The  amount  to  be 
charged  periodically  depends  upon  the  amount  of  the  organization 
expenses  and  the  possibilities  of  profits,  and  this  is  a  %  matter  to  be 
decided  by  the  board  of  directors  of  the  corporation. 

Exercise  82  is  recommended  for  drill  in  opening  the  financial  books  of 
a  corporation. 

Exercise  82.  Opening  the  Financial  Books 

1.  A  corporation  has  been  formed  with  a  capital  stock  of  $75,000. 
This  sum  has  been  fully  paid  in  cash.  Required,  the  necessary  entries. 

2.  A  corporation  has  been  formed  with  a  capital  stock  of  $35,000.  This 
sum  has  been  subscribed  and  paid  in  cash.  Make  the  necessary  entries. 

3.  A  corporation  has  been  formed  with  a  capital  stock  of  $150,000.  Of 
this  sum,  $125,000  has  been  subscribed  and  paid;  the  balance,  $25,000, 
is  to  be  held  in  reserve,  unissued.  Required,  the  necessary  entries. 

4.  A  corporation  has  been  formed  with  a  capital  stock  of  $75,000. 
Of  this  sum,  $50,000  has  been  subscribed  and  paid ;  the  balance, 
$25,000,  is  to  be  held  in  reserve,  unissued.  Make  the  necessary  entries. 

5.  A  corporation  has  been  formed  with  a  capital  stock  of  $100,000. 
Of  this  sum,  $75,000  has  been  subscribed,  of  which  $50,000  has  been 
paid  in  cash,  and  the  balance,  $25,000,  is  to  be  paid  in  five  equal 


OPENING  THE  FINANCIAL  BOOKS 


433 


monthly  installments.  The  balance  of  the  capital  is  to  be  held  in 
reserve,  unissued.  Required,  the  necessary  entries.  One  month  after 
the  organization  of  the  corporation  the  first  payment  on  installments 
was  made.  Required,  the  necessary  entries. 

6.  A  corporation  has  been  formed  for  the  manufacture  of  paper-box 
machinery,  with  a  capital  stock  of  $150,000.  The  owner  of  the  patents 
is  to  receive  for  his  inventions  400  shares  of  stock,  at  $100  per  share. 
Of  the  stock  remaining,  800  shares  have  been  subscribed  and  paid  in 
full,  and  .300  shares  are  to  be  held  in  reserve,  unissued.  Make  the 
entries  necessary  to  open  the  books  of  the  corporation. 

7.  A  corporation  has  been  formed  for  the  purpose  of  manufacturing 
paper  boxes.  The  capital  stock  is  to  be  $50,000,  divided  into  1000 
shares  of  $50  each,  200  shares  of  which  are  preferred  stock,  and  the 
remaining  800  shares  common  stock.  The  preferred  stock  has  been  sub¬ 
scribed  and  paid.  Of  the  common  stock,  60  %  has  been  subscribed  at 
par.  Of  this  latter  sum,  40%  has  been  paid  in  cash,  and  the  balance 
is  to  be  settled  for  in  five  equal  monthly  installments.  The  balance 
of  the  capital  stock  is  to  be  held  in  reserve,  unissued.  Make  the 
entries  necessary  to  open  the  books  of  the  corporation. 

8.  A  corporation  has  been  formed  with  a  capital  stock  of  $40,000, 
divided  into  400  shares  at  $100  per  share.  Of  the  capital  stock, 
75%  has  been  subscribed  at  par,  and  full  payment  made  in  cash; 
the  remainder  is  to  be  held  in  reserve,  unissued.  Make  the  necessary 
opening  entries. 

9.  a.  Explain  the  exact  relationship  of  the  following  amounts  to  one 
another,  and  state  the  books,  financial  or  stock,  or  both,  in  which  the 


details  or  the  sums  would  appear. 

Installment  No.  1,  calls  in  arrears  $1000 

Installment  No.  2,  called  2000 

Authorized  Capital  Stock  10000 

Subscribed  Capital  Stock  9000 

Amount  paid  in  at  time  of  subscription  3000 

Amount  called  in  by  Installment  No.  1  »  2000 

Unissued  Capital  Stock  1000 

Payments  on  Installment  No.  1  *  1000 

Cash  on  hand  5000 

Payments  on  Installment  No.  2  1000 

Balance  of  Subscription  account  2000 


b.  Give  the  journal  entries  which  would  produce  the  data  given  in  a . 

c.  Give  the  trial  balance  of  the  corporation  as  far  as  these  capital 
stock  items  are  concerned. 


CHAPTER  XXXVII 


DISPOSITION  OF  NET  PROFIT 


The  Surplus  Account  and  the  Dividend  Account.  The  nominal  and  the 
summary  revenue  accounts  of  a  business  are  the  same  whether  the 
business  is  conducted  as  a  sole  proprietorship,  a  partnership,  or  a  cor¬ 
poration.  However,  the  proprietary  interest  accounts  differ  for  each 
type  of  organization,  and  therein  lies  one  of  the  distinguishing  features 
of  corporation  accounting.  Since  the  individual  stockholders’  accounts 
are  not  in  the  general  ledger,  and  since  the  capital  stock  of  a  corpo¬ 
ration  may  not  be  changed  except  by  due  process  of  law,  some  method 
other  than  that  used  in  sole  proprietorships  and  partnerships  must  be 
found  for  recording  periodical  profits  and  for  distributing  them  to  the 
owners  of  the  business.  The  method  of  closing  corporation  books  and 
distributing  the  profits  involves  the  use  of  the  Surplus  account  and 
the  Dividend  account. 

The  balance  of  the  Appropriation  revenue  account  is  closed  into  the 
Surplus  account  at  the  end  of  each  fiscal  period.  Assuming  that  the 
Appropriation  account  shows  a  credit  balance  of  $10,000,  the  journal 
entry  is  as  follows: 

Appropriation 
Surplus 

To  transfer  the  net  profit  of  the  period 
to  the  Surplus  account. 


10000 


10000 


The  word  surplus  implies  excess  income,  and  the  Surplus  account  is 
used  to  record  accumulated  profits. 

The  stockholders  have  no  legal  right  to  claim  any  portion  of  the 
surplus  until  the  directors  declare  dividends.  Dividends  may  be  de¬ 
fined  as  the  portion  of  the  corporation  surplus  allotted  to  stockholders. 

Cash  Dividend.  Should  the  directors  decide  to  declare  an  8%  cash 
dividend  on  a  capital  stock  of  $100,000,  and  thus  vote  to  distribute 
$8000,  the  entry  to  record  such  declaration  would  be  as  follows: 


Surplus 

Dividends  Declared 

To  record  declaration  of  8%  dividend, 
payable . 


8000 


8000 


434 


DISPOSITION  OF  NET  PROFIT  435 


When  the  dividends  are  paid,  the  entry  expressed  in  journal  form 
is  as  follows: 


Dividends  Declared 
Cash 

Payment  of  8%  dividend. 


8000 


8000 


Stock  Dividend.  Under  the  corporation  laws  of  many  states  divi¬ 
dends  may  be  paid  in  stock.  In  case  the  authorized  amount  of  capital 
stock  has  to  be  increased,  due  permission  must  be  obtained  from  the 
proper  state  officials  in  the  manner  prescribed  in  the  state  corporation 
law.  The  entry  to  record  the  declaration  of  a  stock  dividend,  using 
the  same  figures  as  in  the  above  illustration,  is  as  follows: 


Surplus 

Stock  Dividend 

To  record  declaration  of  8%  stock 
dividend,  payable . 


8000 


8000 


When  the  stock  dividend  is  distributed,  the  journal  entry  is  as  follows : 


Stock  Dividend 
Capital  Stock 

To  record  distribution  of  8%  stock 
dividend. 


8000 


8000 


How  Dividends  are  Declared.  The  amount  of  dividends  declared  for 
each  kind  of  stock  may  be  expressed  either  as  a  percentage  or  as  a 
definite  amount  per  share.  The  former  method  is  the  general  practice, 
and  the  fact  that  a  board  of  directors  declares  an  8%  dividend  on  the 
common  stock  means  that  each  holder  of  common  stock  will  receive 
8%  of  the  par  value  of  the  stock  owned. 

Dividends  are  usually  numbered  consecutively,  and  either  separate 
accounts  may  be  kept  for  each  dividend  or  the  Dividends  Declared 
account  may  be  made  a  controlling  account. 

If  both  -common  and  preferred  stock  are  outstanding,  separate  divi¬ 
dend  accounts  should  be  used  for  each  class  of  stock. 

Dividends  may  be  declared  annually,  semiannually,  or  quarterly, 
but  the  period  does  not  alter  the  use  of  the  Dividend  account. 

From  What  Payable.  With  the  possible  exception  of  solvent  cor¬ 
porations  operating  wasting  properties,  —  mines,  quarries^  timberlands, 
—  the  dividends  are  payable  only  out  of  net  profits,  and  thus  capital 
investments  remain  intact  for  the  benefit  of  the  creditors  and  the  future 
stockholders.  The  payment  of  dividends  out  of  the  capital  is  prohibited 
by  law  in  most  of  the  states. 


436 


PRINCIPLES  OF  BOOKKEEPING 


To  Whom  Payable.  Dividends  are  payable  only  to  bona-fide  holders 
of  stock  certificates,  as  evidenced  by  the  stock  records  of  the  corpora¬ 
tion.  The  amount  of  each  dividend  payable  to  each  stockholder  appears 
in  the  dividend  book,  one  of  the  stock  records.  In  large  corporations 
whose  stocks  are  actively  traded  in  on  the  exchanges,  the  dividends 
are  usually  declared  payable  to  stockholders  of  record  on  a  given  date. 
The  notice  of  this  fact  may  often  be  found  in  the  metropolitan  daily 
and  financial  papers,  worded  somewhat  as  follows :  "  The  annual  divi¬ 
dend  of  the  X  Company  is  payable  July  1.  Stock  books  close  June  10 
and  open  July  5.” 

The  Dividends  Declared  account  is  a  current  liability  of  the  corpora¬ 
tion,  and  the  stockholders  have  the  same  rights  with  regard  to  its 
collection  as  other  creditors  have  with  regard  to  their  claims. 

Dividends  upon  cumulative-  preferred  stock  are  contingent  upon 
profits  being  earned,  and  until  that  condition  exists,  they  are  not  a 
liability  of  the  corporation  and  should  not  appear  upon  the  books  of 
account.  It  is  highly  advisable,  however,  that  all  stockholders  should 
be  informed  of  any  cumulative  preferred  dividends,  and  a  footnote, 
giving  the  appropriate  data  and  appended  to  the  financial  statement, 
is  considered  the  best  method  of  imparting  the  information. 

The  following  exercise  is  suggested  for  drill  in  the  use  of  the  Surplus 
account  and  the  Dividend  account. 

Exercise  83.  Disposition  of  Net  Profit 

1.  The  capital  stock  of  a  corporation  is  $250,000,  divided  into 
$100,000  of  7%  cumulative  preferred  stock,  and  $150,000  of  common 
stock.  Dividends  have  not  been  paid  for  five  years  past,  but  during 
the  year  under  consideration  $90,000  profit  was  made.  Give  the  journal 
entries  to  record  properly  the  distribution  of  the  profit  to  the  stock¬ 
holders  for  the  six  years.  What  dividend  rate  per  cent  do  the  common 
stockholders  receive  ? 

2.  The  capital  stock  of  a  corporation  is  as  follows : 

Q>°/0  First  Preferred  Stock  $250000 

7  °J0  Second  Preferred  Stock  200000 

Common  Stock  150000 

The  net  profits  for  the  year  are  $44,000. 

Assuming  the  directors  declare  dividends  for  the  entire  amount,  give 
the  journal  entries  to  record  properly  the  distribution  of  the  profits. 


CHAPTER  XXXVIII 

CORPORATION  BONDS 

Definition.  A  bond  is  the  written  promise  of  a  corporation  to  pay 
the  stated  sum  on  the  given  date  with  interest  at  the  stated  rate. 
Bonds  are  generally  issued  when  a  corporation  desires  to  obtain  for 
use  over  a  long  period  of  time  a  large  sum  of  money  for  the  construc¬ 
tion  of  fixed  assets  or  for  the  improvement  or  the  extension  of  the 
present  property.  The  majority  of  bonds  issued  have  a  life  varying 
from  ten  to  fifty  years.  The  statement  of  all  the  conditions  relating  to 
issuance  and  payment  appears  upon  the  face  of  the  bond  and  is  called 
the  bond  recital. 

Security  for  Payment.  Security  for  the  payment  of  the  amount  bor¬ 
rowed  generally  takes  the  form  of  a  mortgage  on  the  property,  and 
the  bond  is  then  called  a  mortgage  bond.  The  bondholders  may  claim 
the  property  if  the  debt  is  not  paid  when  due.  Mortgage  bonds  are 
of  different  kinds ;  for  example,  first ,  second ,  general ,  and  blanket  are 
terms  used  in  connection  with  mortgage  bonds  to  indicate  the  type  of 
security  given  and  the  order  in  which  the  claim  may  be  satisfied  if  the 
mortgages  are  foreclosed. 

Interest.  Interest  upon  bonds  must  be  paid  at  the  date  when  due  or 
bondholders  may  satisfy  their  claims  through  legal  procedure.  For 
this  reason,  bond  interest  is  referred  to  as  a  fixed  charge. 

Bond  interest  is  usually  payable  semiannually. 

A  coupon  bond  is  one  issued  with  interest  coupons  attached  so  that 
the  bondholder  merely  detaches  the  coupon  at  the  time  the  interest  is 
due,  and  presents  it  at  a  bank,  the  office  of  the  corporation,  or  the 
office  of  a  broker  in  order  to  receive  the  actual  interest  money.  Coupon 
bonds  are  negotiable,  and  presentation  of  the  matured  bond  itself  is 
accepted  as  evidence  of  ownership. 

A  registered  bond  is  one  upon  which  interest  is  payable  to  the  per¬ 
son  whose  name  is  recorded  in  the  office  of  the  corporation  as  being 
the  owner  thereof.  When  the  bond  becomes  due,  payment  is  made  to 
the  name  contained  in  the  register  of  bondholders. 

Some  bond  issues  provide  for  the  registration  of  the  face  of  the  bond 
and  for  the  payment  of  the  interest  by  coupons. 

437 


438 


PRINCIPLES  OF  BOOKKEEPING 


Date  of  Maturity.  All  the  bonds  of  an  issue  may  have  the  same 
date  of  maturity  or  the  bonds  may  be  issued  serially,  in  which  case 
bonds  within  a  certain  range  of  numbers  fall  due  at  different  dates. 

Redemption.  Bonds  may  be  redeemed  in  different  ways.  Among  the 
several  methods  of  redemption,  the  bond  recital  may  provide  that  the 
face  of  the  bond  is  to  be  paid  in  gold  at  maturity,  that  the  bond  is 
convertible  into  preferred  stock  within  a  given  period  on  a  certain  basis 
of  exchange,  or  that  the  bond  is  redeemable  in  cash  before  maturity  on 
a  certain  basis. 

Recording  the  Sale  of  Bonds.  If  an  issue  of  1000  twenty-year  5% 
first-mortgage  bonds,  denomination  $100,  were  sold  at  par,  the  entry 
expressed  in  journal  form  would  be  as  follows: 


Cash 

First-Mortgage  Bonds  Payable 
Sale  of  bond  issue  at  par. 


100000 


100000 


If  the  bond  issue  were  sold  for  $102,000,  the  entry  would  be : 


Cash 


102000 


First-Mortgage  Bonds  Payable 
Premium  on  Bonds  Issued 

Sale  of  bond  issue  at  102. 


100000 

2000 


If  the  bond  issue  were  sold  for  $98,000,  the  entry  would  be : 


Cash 

Discount  on  Bonds  Issued 

First-Mortgage  Bonds  Payable 

Sale  of  bond  issue  at  98. 


98000 

2000 


100000 


The  majority  of  bond  issues  are  not  sold  for  their  face  or  par  value, 
since  the  condition  of  the  money  market,  the  market  rate  of  interest, 
the  rate  of  interest  which  the  bonds  bear,  and  the  credit  of  the  cor¬ 
poration  issuing  the  bonds  cause  the  bonds  to  be  sold  at  a  premium 
(above  par)  or  at  a  discount  (below  par).  Par  is  always  considered 
100;  a  premium  of  2%  may  be  expressed  as  102,  and  likewise  a  dis¬ 
count  of  2%  may  be  expressed  as  98. 

Recording  the  Interest  on  Bonds.  If  the  interest  on  the  bonds  referred 
to  above  were  payable  semiannually,  the  entry  to  record  the  payment 
of  interest  would  be  as  follows : 


Interest  on  First-Mortgage  Bonds  Payable 
Cash 


2500 


2500 


Semiannual  interest  on  bonds. 


CORPORATION  BONDS  439 

Interest  on  Bonds  Payable  is  a  financial  expense  account  and  is  closed 
into  the  Financial  Income  and  Expense  account. 

Sinking  Fund.  A  sinking  fund  is  a  fund  set  aside  for  the  redemption 
of  bonds  at  maturity.  There  are  two  general  methods  of  determining 
the  amount  of  money  which  shall  be  set  aside  annually  to  provide  for 
the  actual  redemption  of  the  bonds.  The  first  is  the  pro-rata  method 
in  which  the  amount  of  the  bond  issue  is  divided  by  the  life  of  the 
bonds,  and  the  resulting  quotient  gives  the  amount  to  be  set  aside 
each  year.  The  second  general  method  is  based  upon  the  fact  that 
the  interest  upon  the  installments  should  be  considered.  The  pro-rata 
method  is  used  in  this  text. 

To  illustrate  the  use  of  the  sinking  fund,  assume  that  it  is  desired 
to  accumulate  a  sinking  fund  for  the  redemption  of  the  $100,000  bond 
issue  referred  to  above.  The  life  of  the  bonds  is  twenty  years,  and 
thus  the  pro-rata  contribution  to  the  sinking  fund  is  $5000.  The 
money  must  be  available  for  the  redemption  of  the  bonds,  and  it  is 
accumulated  by  setting  aside  annually  this  amount.  The  journal  entry 
to  record  this  transaction  is  as  follows: 

Sinking  Fund 
Cash 

Periodical  contribution  to  the  sink¬ 
ing  fund  for  the  redemption  of  first- 
mortgage  bond  issue. 

At  the  end  of  twenty  years  the  entry  to  record  the  payment  of  the 
debt  is  as  follows: 

First-Mortgage  Bonds  Payable 
Sinking  Fund 

Redemption  of  bonds  from  sinking 
fund  accumulated  for  the  purpose. 

Bond  recitals  frequently  provide  that,  in  addition  to  the  security 
given,  a  sinking  fund  shall  be  accumulated  for  the  redemption  of  the 
bonds  by  periodically  charging  the  annual  sinking-fund  installment 
against  the  profits  of  the  period.  Such  procedure  is  impossible  of  ful¬ 
fillment  without  violation  of  fundamental  accounting  principles,  since 
a  fund  is  always  cash  or  assets  readily  convertible  into  cash,  and  a 
liability  cannot  be  paid  by  charging  revenue.  The  actual  effect  of 
such  a  sinking-fund  clause  in  a  bond  recital  is  to  prevent  all  the 
surplus  being  available  for  dividends  by  reserving  annually  a  portion 


100000 


100000 


5000 


5000 


440 


PRINCIPLES  OF  BOOKKEEPING 


of  the  surplus  equal  to  the  sinking-fund  installment, 
entry  to  record  this  reservation  is  as  follows : 


Surplus 

Appropriated  Surplus  for  Sink¬ 
ing-Fund  Requirements 

Annual  reservation  of  surplus  equal 
to  sinking-fund  installment. 


5000 


The  annual 


5000 


The  entries  relating  to  the  actual  fund  are  the  same  as  those  just 
illustrated.  The  annual  entry  for  the  accumulation  of  the  sinking 
fund  is  to  debit  Sinking  Fund  and  to  credit  Cash ,  and  the  entry  to 
record  the  redemption  of  the  bonds  is  to  debit  the  Bond  account  and 
to  credit  Smking  Fund. 

When  the  bonds  are  redeemed  the  surplus  reserved  is  transferred 
to  the  Surplus  account,  and  thus  made  available  for  dividends  by  the 
following  journal  entry: 


Appropriated  Surplus  for  Sinking- 
Fund  Requirements 
Surplus 

To  transfer  the  amount  reserved 
back  to  the  Surplus  account,  the 
bonds  having  been  redeemed. 


100000 


100000 


The  following  exercise  may  be  used  as  drill  in  points  relating  to 
corporation  bonds. 

Exercise  84.  Corporation  Bonds 

1.  The  Patton  Manufacturing  Co.  authorizes  the  issue  of  $200,000 
first-mortgage  ten-year  bonds,  denomination  $500,  interest  at  5%,  pay¬ 
able  semiannually.  Make  the  proper  journal  entries  to  record  each  of 
the  following  assumptions : 

a.  The  entire  issue  is  sold  at  par. 

b.  The  interest  is  paid  on  the  bond  issue  for  the  first  six  months. 

2.  a.  The  recital  in  the  bonds  above  mentioned  provides  for  the  pro¬ 
rata  annual  reservation  of  profits  to  insure  the  payment  of  the  bonds 
at  maturity.  Required,  the  necessary  annual  entry. 

b.  If  in  addition  to  2.  a.  the  recital  provides  for  the  establishment 
of  a  sinking  fund,  give  the  annual  entries. 

c.  How  would  the  two  sinking-fund  accounts  and  the  bond  account 
stand  before  the  bonds  are  redeemed  ?  after  the  bonds  are  redeemed  ? 


CHAPTER  XXXIX 


REVENUE  ACCOUNTS  AND  OPERATING  STATEMENT  OF  A 
MANUFACTURING  BUSINESS 

Trial  Balance.  The  method  of  compiling  the  revenue  accounts  and 
the  operating  statement  for  a  manufacturing  business  is  illustrated  by 


taking  data  from  the  books  of  the  Colby  Manufacturing  Co. 

The  tri 

balance  on  Dec.  31,  19 — ,  is  as  follows : 

Cash 

$2500 

Accounts  Receivable 

8976 

Reserve  for  Bad  Debts 

$800 

Inventory,  Finished  Goods,  Dec.  1 

3000 

Inventory,  Goods  in  Process,  Dec.  1 

5000 

Inventory,  Raw  Material,  Dec.  1 

10000 

Factory  Equipment 

31200 

Reserve  for  Depreciation,  Factory  Equipment 

4500 

Office  Equipment 

1440 

Reserve  for  Depreciation,  Office  Equipment 

144 

Unexpired  Insurance 

750 

Accounts  Payable 

4026 

Accrued  Taxes 

100 

Capital  Stock 

50000 

Sales 

20000 

Mdse.  Discount  on  Purchases 

115 

Raw  Material  Purchases 

5000 

Factory  Dabor 

9000 

Factory  Rent 

100 

Factory,  Power,  Heat,  and  Light 

670 

Sundry  Factory  Expenses 

45 

Repairs  to  Factory  Equipment 

85 

Salesmen’s  Salaries 

750 

Salesmen’s  Expenses 

300 

Advertising 

350 

Sundry  Sales  Department  Expense 

150 

Office  Salaries 

200 

Office  Supplies 

14 

Office  Heat  and  Light 

10 

Sundry  Office  Expense 

15 

Mdse.  Discount  on  Sales 

130 

$79685  $79685 


441 


442 


PRINCIPLES  OF  BOOKKEEPING 


Notations  : 

Estimated  taxes  for  the  month,  $50. 

Insurance  for  the  month,  $30. 

Reserve  1%  of  sales  for  bad  debts. 

Depreciation  on  factory  equipment,  10%  per  year. 

Depreciation  on  office  equipment,  5%  per  year. 

Inventory,  Finished  Goods,  Dec.  31,  $3250. 

Inventory,  Goods  in  Process,  Dec.  31,  $5250. 

Inventory,  Raw  Material,  Dec-.  31,  $9000. 

The  entries  to  record  the  taxes,  insurance,  bad  debts,  and  depreciation 
charges  are  as  follows: 


Taxes 

Accrued  Taxes 

To  charge  operating  expenses  with  the 
month’s  share  of  estimated  taxes. 

50 

50 

Insurance 

Unexpired  Insurance 

Portion  of  insurance  chargeable  to 
December. 

30 

30 

Bad  Debts 

Reserve  for  Bad  Debts 

To  reserve  1%  of  sales  for  antici¬ 
pated  loss  from  bad  debts. 

200 

200 

Depreciation,  Factory 

Reserve  for  Depreciation,  Factory 
Equipment 

Portion  of  depreciation  on  factory 
chargeable  to  December. 

260 

- 

260 

Depreciation,  Office 

Reserve  for  Depreciation,  Office 
Equipment 

Portion  of  depreciation  chargeable  to 
December. 

6 

6 

Entries  which  record  the  charges  for  such  items  as  taxes;  insurance, 
bad  debts,  and  depreciation  are  sometimes  called  adjusting  entries.  The 
data  for  calculating  these  charges  are  usually  stated  in  the  notations, 
supplementary  to  the  trial  balance.  The  adjusting  journal  entries  should 
be  posted  to  the  ledger  before  the  closing  journal  entries  are  made. 


STATEMENT  OF  A  MANUFACTURING  BUSINESS  443 


Revenue  Accounts.  Since  this  is  a  manufacturing  business,  the  reve¬ 
nue  accounts  include  a  Manufacturing  account.  The  entries  necessary 
to  place  the  proper  revenue  accounts  upon  the  books  of  the  Colby 
Manufacturing  Co.  are  as  follows: 


Manufacturing 

33240 

Inventory,  Finished  Goods 

3000 

Inventory,  Goods  in  Process 

5000 

Inventory,  Raw  Materials 

10000 

Raw  Material  Purchases 

5000 

Factory  Labor 

9000 

Factory  Rent 

100 

Factory  Power,  Heat,  and  Light 

670 

Taxes 

50 

Insurance 

30 

Depreciation,  Factory 

260 

Sundry  Factory  Expenses 

45 

Repairs  to  Factory  Equipment 

85 

To  close  these  accounts  into  the  Manu¬ 

facturing  account. 

Inventory,  Finished  Goods 

3250 

Inventory,  Goods  in  Process 

5250 

Inventory,  Raw  Materials 

9000 

Manufacturing 

17500 

To  credit  the  Manufacturing  account 

with  the  inventories  on  hand  at  the  end 

of  the  month  by  placing  them  upon  the 

ledger. 

Trading 

15740 

Manufacturing 

15740 

To  transfer  the  balance  of  the  Manu¬ 

facturing  account,  representing  the  cost 

of  goods  sold,  to  the  Trading  account. 

Trading 

1750 

Salesmen’s  Salaries 

750 

Salesmen’s  Expenses 

300 

Advertising 

350 

Bad  Debts 

200 

Sundry-Sales  Department  Expenses 

150 

To  close  these  accounts  into  the  Trad¬ 

ing  account. 

444 


PRINCIPLES  OF  BOOKKEEPING 


Sales 

20000 

Trading 

To  close  this  account  into  the  Trading 

20000 

account. 

Trading 

2510 

Administration 

2510 

To  transfer  the  balance  of  the  Trading 
account,  representing  trading  profit,  to 
the  Administration  account. 

Administration 

245 

Office  Salaries 

200 

Office  Supplies 

14 

Office  Heat  and  Light 

10 

Depreciation,  Office 

6 

Sundry  Office  Expenses 

To  close  these  accounts  into  the 

15 

Administration  account. 

Administration 

2265 

Appropriation 

To  transfer  the  balance  of  the  Adminis¬ 

2265 

tration  account,  representing  net  oper¬ 
ating  profit,  to  the  Appropriation  account. 

Mdse.  Discount  on.  Purchases 

115 

Financial  Income  and  Expense 

To  close  this  financial  income  ac¬ 

115 

count. 

Financial  Income  and  Expense 

130 

Mdse.  Discount  on  Sales 

130 

To  close  this  financial  expense  ac¬ 

count. 

Appropriation 

15 

Financial  Income  and  Expense 

To  close  this  account,  representing 

15 

net  financial  loss. 

Appropriation 

2250 

Surplus 

2250 

To  transfer  the  net  profit  of  the  month 
to  the  Surplus  account. 

If  the  Appropriation  account  shows  a  debit  balance,  a  net  loss  occurs, 
and  this  last  entry  is  reversed. 


STATEMENT  OF  A  MANUFACTURING  BUSINESS  445 


Operating  Statement.  The  operating  statement  which  would 
piled  from  the  technical  revenue  accounts  appears  as  follows  : 

Colby  Manufacturing  Company 
Operating  Statement 
For  the  month  of  December,  19 — 

Sales 

Cost  of  production : 

Raw  Material : 


Inventory,,  Dec.  1 

$10000 

Purchases 

5000 

Inventory,  Dec.  31 

$15000 

9000 

$6000 

Factory  Labor 

9000 

Factory  Rent 

100 

Factory  Power,  Heat,  and  Light 

670 

Taxes 

50 

Insurance 

30 

Depreciation,  Factory 

260 

Sundry  Factory  Expenses 

45 

Repairs  to  Factory  Equipment 

85 

Goods  in  Process,  Dec.  31 

$5250 

$16240 

Goods  in  Process,  Dec.  1 

5000 

250 

Cost  of  goods  made 

$15990 

Deduct : 

Finished  Goods,  Dec.  31 

$3250 

Finished  Goods,  Dec.  1 

3000 

250 

Cost  of  goods  sold 

Gross  profit  on  sales 

Trading  expenses : 

Salesmen’s  Salaries 

$750 

Salesmen’s  Expenses 

300 

Advertising 

350 

Bad  Debts 

200 

Sundry  Sales  Department  Expense 

'  150 

Trading  profit 

Administrative  expenses : 

Office  Salaries 

$200 

Office  Supplies 

14 

Office  Heat  and  Light 

10 

Depreciation,  Office 

6 

Sundry  Office  Expense 

15 

Net  operating  profit 

be  corn- 


120000 


15740 

|4260 


1750 

$2510 


245 

$2265 


446 


PRINCIPLES  OF  BOOKKEEPING 


Deduct :  Financial  Expense 

$2265 

Mdse.  Discount  on  Sales 

$130 

Add :  Financial  Income 

Mdse.  Discount  on  Purchases 

115 

15 

Net  profit  for  December 

$2250 

Exercise  85  is  suggested  for  a  drill  in  compiling  the  revenue  accounts 
and  operating  statement  of  a  manufacturing  business. 

Exercise  85.  Manufacturing  Revenue  Accounts  and  Operating  Statement 

1.  a.  On  sheets  of  ledger  paper  open  the  accounts  necessary  for  record¬ 
ing  the  preceding  trial  balance  data  and  for  posting  the  closing  entries. 

b.  Prepare  a  financial  statement  from  the  ledger  of  the  Colby  Manu¬ 
facturing  Co.,  as  obtained  in  a. 

2.  The  following  is  the  trial  balance  of  Wiles  &  Co.  on  Dec.  81,  19 — : 


Common  Capital  Stock 

$175000 

Preferred  Capital  Stock 

50000 

Sales 

725000 

Mdse.  Discount  on  Purchases 

500 

Accounts  Payable 

22500 

Purchases 

$225000 

Wages 

375000 

Inventory,  Jan.  1 

100000 

Cash  on  hand 

6125 

Office  Expenses 

1750 

Office  Salaries 

2800 

Buildings  and  Fixtures 

25000 

Machinery 

69500 

Furniture  and  Furnishings 

1500 

Taxes 

500 

Unexpired  Insurance 

500 

Mdse.  Discount  on  Sales 

4075 

Sales  Commissions  Paid 

36250 

Accounts  Receivable 

125000 

$973000 

$973000 

Notations  : 

Inventory,  Dec.  31,  $107,500. 

Depreciation  on  buildings  and  fixtures,  per  year. 
Depreciation  on  machinery,  5%  per  year. 

Depreciation  on  furniture  and  furnishings,  5%  per  year. 
Reserve  1^%  of  sales  for  bad  debts. 

Accrued  wages,  $1500. 

Insurance  for  the  year,  $350. 


STATEMENT  OF  A  MANUFACTURING  BUSINESS  447 


a.  Prepare  the  revenue  accounts  and  operating  statement. 

b.  Give  the  journal  entries  necessary  to  record  the  declaration  of 
a  7%  dividend  on  the  preferred  stock  and  a  10%  dividend  on  the 
common  stock. 


3.  The  following  figures  are  taken  from  the 
Manufacturing  Co.  on  Dec.  31,  19 — : 
Inventories,  first  of  year  : 

books  of 

the  Warner 

Finished  Goods 

$5750 

Goods  in  Process 

10245 

Raw  Material 

15725 

Raw  Material  Purchases 

75630 

Factory  Wages 

115915 

Rent  of  Factory  Building 

12000 

Factory  Heat,  Light,  and  Power 

9135 

Office  Heat  and  Light 

210 

Packing  Supplies,  Used 

2017 

Sundry  Factory  Expense 

3575 

Machinery  and  Equipment 

45700 

Salesmen’s  Salaries 

20115 

Salesmen’s  Expenses 

10547 

Sales 

$313300 

Interest  Paid 

415 

Notes  Payable 

1500 

Trade  Acceptances  Receivable 

6270 

Sundry  Sales  Expense 

1870 

Advertising 

6540 

Office  Salaries 

3250 

Officers’  Salaries 

4800 

Good  Will 

10000 

Sundry  Office  Expense 

6825 

Cash  on  hand  and  on  deposit 

4768 

Returned  Sales 

3758 

Accounts  Receivable 

30260 

Accounts  Payable 

Reserve  for  Depreciation,  Machinery  and 

15360 

Equipment 

5780 

Reserve  for  Bad  Debts 

4827 

Office  Furniture  and  Furnishings 

3050 

Reserve  for  Depreciation,  Office  Furniture 

‘ 

and  Furnishings 

215 

Mdse.  Discount  on  Purchases 

1560 

Mdse.  Discount  on  Sales 

2485 

Capital  Stock 

65000 

Surplus 

3313 

#410855 

#410855 

448 


PRINCIPLES  OF  BOOKKEEPING 


Notations  : 

Inventories,  end  of  year  : 

Finished  Goods  $7890 

Goods  in  Process  15480 

Raw  Materials  8745 

Reserve  10%  for  depreciation  on  machinery  and  equipment. 
Reserve  5%  for  depreciation  on  office  furniture  and  furnishings. 
Reserve  1%  for  bad  debts. 

a.  Prepare  the  revenue  accounts. 

b.  Prepare  the  operating  statement. 


CHAPTER  XL 


SET  IX.  CHAIR-MANUFACTURING  BUSINESS 

THE  VOUCHER  SYSTEM 


General  Principles.  The  purchase  of  commodities  may  be  recorded 
according  to  one  of  two  general  plans,  —  the  use  of  the  purchase  book 
and  the  use  of  the  voucher  system.  The  purchase  book  has  been  used 
in  previous  sets,  and  in  this  set  the  voucher  system  will  be  described, 
illustrated,  and  used  to  record  the  commodities  purchased. 


Madison  Chair  Co. 
To _ 


Dr.. 


No.. 


Madison,  Wis., _ 19 — 


Date 

Description  of  Purchase 

Items 

Amount 

Extension  and  distribution  verified  by 

Goods  received 

Prices 


Bookkeeper 
Receiving  Clerk 
Purchasing  Agent 


Approved  for  payment 


General  Manager 


FACE  OF  VOUCHER 


The  voucher  system  derives  its  name  from  a  special  form  of  an 
abstract  of  the  invoice,  sometimes  combined  with  an  affidavit,  receipt, 
or  check,  which  is  issued  for  purchases,  and  perhaps  for  other  expenses 
of  the  business. 

The  general  principles  of  the  system  are  so  susceptible  of  modifica¬ 
tions  that  the  details  in  use  by  different  companies  even  in  the  same 
industry  may  differ  materially.  In  each  case  the  content  of  the  printed 
voucher  form,  the  expenses  for  which  vouchers  are  issued,  the  signatures 
required  to  validate  the  voucher,  and  the  methods  of  numbering  and 
filing  the  vouchers  may  vary  without  violating  the  general  principles 

449 


450 


PRINCIPLES  OF  BOOKKEEPING 


underlying  the  system.  It  is  an  excellent  illustration  of  the  fact  that 
each  business  should  have  an  accounting  system  which  is  best  adapted 
to  its  particular  conditions,  and  which  enables  one  to  obtain  the  greatest 
amount  of  information  with  the  minimum  of  effort.  In  this  set  vouchers 
are  issued  only  for  material  purchases. 

The  Voucher.  As  soon  as  any  invoice  or  bill  has  been  received  and 
audited,  a  voucher,  usually  consecutively  numbered,  is  issued  for  the 

transaction.  The  face  of  the  voucher  is 
simply  an  abstract  of  the  invoice  or  bill, 
and  it  usually  provides  for  the  approval 
by  signature  of  the  proper  officials  of  the 
company.  Thus  the  bookkeeper  may  certify 
to  the  accuracy  of  the  extensions  of  the 
bill,  the  receiving  clerk  to  the  receipt  of 
the  goods,  the  purchasing  agent  to  the  unit 
prices,  and  the  auditor  or  other  official  may 
approve  the  voucher  for  payment.  The  illus¬ 
tration  on  the  preceding  page  shows  the  face 
of  a  voucher  form. 

The  back  of  the  voucher  generally  con¬ 
tains  space  for  the  number,  the  date,  the 
name  of  the  creditor,  the  amount,  the  names 
of  the  accounts  to  which  the  voucher  may 
be  charged,  and  the  distribution  of  the  par¬ 
ticular  voucher  among  such  accounts.  These 
data  are  so  arranged  that  when  the  voucher 
is  folded  all  pertinent  data  appear  on  one 
side  of  the  folded  sheet.  The  accompanying 
illustration  shows  the  data  printed  on  the 
back  of  the  voucher  form,  the  face  of 
which  was  just  shown. 

The  voucher  form  described  is  sometimes 
called  a  voucher  jacket,  on  the  theory  that 
the  invoice  or  other  evidence  of  the  expense 
may  be  attached  to  the  inside  of  the  voucher  and  filed  with  it.  Sup¬ 
porting  papers  are  generally  filed  according  to  the  number  of  the 
voucher,  the  name  of  the  creditor,  or  the  purpose  of  the  expense. 

Different  Forms  of  Vouchers.  Affidavits,  receipts,  or  checks  may  be 
printed  on  the  same  sheet  as  the  voucher.  For  example,  the  youcher 
in  use  by  many  governmental  departments  provides  space  for  the 
affidavit  of  the  vendor. 


Voucher  No. 

Date _ 

To _ _ 


$ 


Account  Debited 

Amount 

Lumber 

Veneer 

Hardware 

Cane 

Upholstering 

Finishing  Materials 
Packing  Supplies 

Sundry  Factory  Supplies 

Total 

BACK  OF  VOUCHER 


SET  IX.  CHAIR-MANUFACTURING  BUSINESS  451 

Receipt  forms  are  often  printed  upon  the  voucher  so  that  the  vendor 
may  fill  in  the  spaces  when  payment  is  made,  and  return  the  voucher 
to  the  issuing  company  for  filing.  The  following  illustration  shows 
the  ruling  of  the  face  of  a  voucher  combined  with  a  receipt  blank.  The 
back  of  the  form  might  be  ruled  the  same  as  the  one  already  illustrated. 


Madison  Chair  Company 

No. 

To 

Dr., 

Madison,  Wis., 

19 

Date 

Description  of  Purchase 

Items 

Amount 

Account  verified  by 

Approved  for  payment 

Auditor 

President 

19 

Received  of  Madison  Chair  Company 

$ 

Dollars 

In  full  for  the  above  account 

VOUCHER  AND  RECEIPT 


The  most  common  form  of  a  voucher  is  in  some  particular  combina¬ 
tion  with  the  check  issued  in  payment  of  the  account.  The  check  may 
be  printed  upon  the  back  of  the  voucher  itself,  or  it  may  be  printed 
upon  a  perforated  blank  which  may  be  detached  by  the  payee  before 
being  deposited.  If  the  check  is  printed  upon  the  back  of  the  voucher, 
the  latter  is  folded  lengthwise,  with  the  check  on  one  side  and  space 
for  the  indorsements  on  the  other.  The  folded  voucher  check  is  de¬ 
posited  by  the  payee  and  in  due  time  it  is  filed  in  the  office  of  the 
drawer  of  the  check,  the  best  possible  evidence  of  the  payment  of 
the  account  stated  in  the  voucher.  Under  this  arrangement  the  dis¬ 
tribution  of  the  amounts  on  the  back  of  the  voucher  is  usually  left  off 
the  voucher  itself,  but  the  necessary  data  appear  upon  the  stub  of  the 
voucher  retained  in  the  office  of  the  payer.  The  combined  voucher  checks 
and  the  stubs  may  be  bound  together  in  the  form  of  a  voucher  book,  or 
blocked  together  in  pads.  In  the  latter  case  the  stubs  are  generally  filed 
according  to  number  and  thus  made  available  for  quick  reference. 


452 


PRINCIPLES  OF  BOOKKEEPING 


The  check  which  is  printed  upon  a  perforated  portion  of  the  voucher 
may  be  attached  to  the  voucher  and  sent  to  the  payee,  in  which  case 
the  payee  returns  the  voucher  itself  to  the  drawer  of  the  check ;  or  it 
may  be  detached  from  the  voucher  blank  in  the  office  of  the  maker 
before  the  remittance  is  made,  and  the  folded  voucher  filed  away  for 
permanent  reference.  Variations  as  to  the  exact  procedure  followed 
may  be  found  in  different  offices. 

Another  form  of  a  voucher  check  frequently  used  is  a  check  contain¬ 
ing  a  memorandum  statement  regarding  the  purpose  of  the  remittance. 
The  following  illustration  is  suggestive  of  this  form  of  a  voucher  check. 


Voucher  No. 

This  check  is  given  in  settle¬ 
ment  of  our  account  as  follows  : 

cUhe  Union  [Bank 

19 

Pay  to  the  order  of  $ 

‘Dollars 

Your  statement 
Invoices 

Distribution 

Cash  Discount 

Net 

Check  No. 

If  incorrect,  return  without 
alterations.  Your  indorsement 
will  be  considered  a  receipt  for 
amount  as  stated. 

VOUCHER  CHECK 


Size  of  Vouchers.  In  1909,  as  a  result  of  a  meeting  of  committees 
representing  the  American  Bankers  Association,  the  American  Associa¬ 
tion  of  Public  Accountants,  the  Society  of  Railway  Financial  Officers, 
and  the  Association  of  Railway  Accounting  Officers  called  to  reach  an 
agreement  regarding  a  standard  uniform  voucher  check,  three  resolu¬ 
tions  were  passed.  These  resolutions  are  quoted  in  full  from  the 
Journal  of  Accountancy  for  February,  1909  (Vol.  VII,  p.  329),  since 
the  decision  of  such  a  representative  group  of  business  men  should  be 
given  careful  thought  by  any  person  who  may  wish  to  design  a  special 
voucher  check. 


UNIFORM  BANK  VOUCHER  CHECK 
Resolution  No.  1.  Negotiability 

That  it  is  the  sense  of  this  meeting  that  the  voucher  check  be  made  in 
negotiable  form. 

Resolution  No.  2.  Form 

That  it  is  the  sense  of  this  meeting  that  a  voucher  check  should  be  in  the 
form  of  a  straight  check  or  draft,  and  indorsement  of  the  payee  thereon  be 
accepted  as  the  only  receipt  required. 


SET  IX.  CH AIK-MANUFACTURING  BUSINESS 


453 


Resolution  No.  3.  General  Requirement 

That  it  is  the  sense  of  this  meeting  that  the  check  voucher  should  be  of 
the  standard  check  size  and  in  the  standard  draft  form,  with  the  number, 
date,  amount,  and  signature  at  the  right  end  in  the  order  named,  and  the 
name  of  the  payer  (Bank  or  Treasurer  of  Company)  in  the  lower  left  corner, 
and  that  where  a  folded  voucher  is  considered  necessary  by  railroad  com¬ 
panies,  it  should  fold  to  standard  check  size,  the  chfeck  or  draft  to  be  at 
the  bottom. 

That  when  a  detachable  check  is  used,  it  should  be  in  the  standard  form 
described  above. 

The  conference  committee  further  recommended  the  following  gen¬ 
eral  characteristics : 

Number,  Date,  Amount,  Signature 

We  believe  that  the  number,  the  date,  the  amount,  and  the  signature 
should  all  be  in  evidence  on  the  right-hand  side  of  the  check. 

Paper 

That  the  paper  of  the  original  should  be  of  good  quality  and  that  the 
paper  of  the  copy  should  be  of  a  different  color,  to  distinguish  it  easily,  and 
may  be  of  inferior  quality. 

Advertising  Business  Cards 

That  no  advertising  or  business  cards  should  be  placed  upon  the  check 
form  which  may  tend  to  confuse  or  blind  the  party  handling  the  check  or 
cause  important  details  of  the  check  to  be  obscured. 

Size 

The  size  of  the  check  or  draft  form  should  be  from  3  inches  to  3^  inches 
wide  by  8^-  inches  long,  and  folded  vouchers  of  whatever  size  should  readily 
fold  to  the  same  dimensions,  and  thus  adapt  themselves  to  all  ordinary 
check  files.  Checks  narrower,  wider,  or  longer  than  these  dimensions  are 
objectionable. 

Note.  The  railroads  make  the  voucher  referred  to  above  in  duplicate,  and 
designate  it  the  "copy.” 

Filing  Vouchers.  Paid  vouchers  are  filed  separately  from  the  unpaid 
vouchers.  The  unpaid  vouchers  therefore  become  the  accounts  payable 
of  the  company,  but  in  the  voucher  system  the  Accounts  Payable  account 
is  generally  referred  to  as  the  Vouchers  Payable  account. 

Journal  Vouchers.  While  the  subject  of  vouchers  is  being  considered, 
attention  should  be  called  to  the  use  of  the  journal  voucher. 

In  many  business  offices  the  use  of  specialized  books  of  original 
entry  has  so  lessened  the  use  of  the  journal  that  it  is  seldom  kept  as 


454 


PRINCIPLES  OF  BOOKKEEPING 


a  bound  book.  Its  use  is  limited  practically  to  the  opening  and  the 
closing  entries,  the  adjustments  and  the  transfers,  and,  in  general,  to 
entries  which  cannot  be  entered  in  any  other  book  of  original  entry. 

All  entries  recorded  in  the  journal  may  be  entered  on  journal 
vouchers,  which  are  generally  approved  by  the  bookkeeper  as  to  accu¬ 
racy  and  by  the  proper  official  as  to  authenticity.  Such  journal 
vouchers  may  be  attached  to  any  documents  supporting  the  entry,  or 
they  may  be  folded  and  filed  numerically,  or  they  may  be  placed  in  a 
loose-leaf  binder. 

In  some  cases  the  journal  voucher  and  the  usual  expense  voucher 
are  combined,  and  the  voucher  register  (see  page  455)  is  ruled  to  accom¬ 
modate  not  only  expenses  but  also  the  usual  journal  entries. 

PRELIMINARY  EXPLANATIONS 

Object  of  the  Set.  The  object  of  this  set  is  to  illustrate  the  use  of 
the  voucher  system  and  the  imprest  method  of  handling  petty  cash. 

Books  Used.  The  books  used  in  this  set  are  the  journal,  the  cash¬ 
book,  the  petty  cashbook,  the  voucher  register,  the  sales  book,  the 
general  ledger,  the  customers’  ledger,  and  the  creditors’  ledger. 

Journal .  The  journal  in  this  set  is  the  same  as  that  used  in  previous 
sets. 

Cashbook.  The  cashbook  used  in  this  set  is  essentially  the  same  as 
that  used  in  Set  VIII,  the  only  changes  being  that  the  column  for¬ 
merly  called  Accounts  Payable  is  now  termed  Vouchers  Payable. 

Both  Accounts  Receivable  and  Vouchers  Payable  are  controlling  accounts, 
controlling  the  customers’  ledger  and  the  creditors’  ledger,  respectively. 


Voucher 

No. 

Date 

F. 

Names 

Addresses 

Terms 

1 

Feb. 

2 

27 

Merrill  &  Co. 

Chicago 

6/10,  net  30  da. 

2 

4 

28 

Fleming  &  Deming 

St.  Louis 

2/15,  60  da.  net 

3 

4 

24 

Gray  &  Dunokle 

Sheboygan 

30  da.  net 

4 

2 

33 

Brown  &  Son 

Cleveland 

2/10,  net  30  da. 

5 

5 

27 

Merrill  &  Co. 

Chicago 

6/10,  net  30  da. 

6 

9 

32 

C.  W.  Hall 

Chicago 

2/10,  net  30  da. 

7 

12 

34 

Coates  &  Son 

Milwaukee 

2/10,  1/30,  net  60  da. 

8 

18 

35 

Bender  &  Hill 

New  York 

1/10,  net  30  da. 

9 

17 

26 

C.  H.  Shaw  Co. 

Memphis 

2/15,  60  da.  net 

MODEL  VOUCHER 


SET  IX.  CHAIR-MANUFACTURING  BUSINESS 


455 


In  this  set  it  will  be  necessary  to  forward  the  totals  of  the  cashbook 
columns  to  a  second  page.  On  the  last  line  of  the  first  page  write 
Carried  Forward  opposite  the  columnar  totals,  and  on  the  first  line  of 
the  second  page  write  Brought  Forward  and  insert  the  totals  in  the 
proper  columns. 

Petty  Cashbook.  The  petty  cashbook  used  in  this  set  is  kept  upon 
the  imprest  cash  system.  The  entries  for  disbursements  are  made  in 
the  same  manner  as  was  followed  in  Set  VIII  for  petty-cashbook 
entries,  but  the  postings  are  made  from  the  book  in  a  different  manner. 
The  closing  of  the  petty  cashbook  is  described  on  page  464. 

The  Voucher  Register.  The  data  contained  on  a  voucher  ar#  copied 
into  a  book  of  original  entry  called  the  voucher  register.  The  form  of 
the  voucher  register  used  in  this  set  is  illustrated  below. 

If  vouchers  are  issued  for  only  those  expenses  which,  in  previous 
sets,  were  recorded  in  the  purchase  book,  the  voucher  register  corre¬ 
sponds  to  the  purchase  book.  In  case  vouchers  are  issued  for  all 
expenses  (materials,  labor,  and  all  other  expenses  excepting  petty  cash), 
the  use  of  the  two  books  is  not  identical,  since  more  transactions  are 
recorded  in  the  voucher  register  than  in  the  purchase  book. 

The  voucher  register  is  provided  with  columns  which  allow  for  the 
same  distribution  of  the  vouched  amounts  as  may  be  recorded  on  the 
back  of  the  voucher  or  on  the  voucher  stub.  When  the  voucher  register 
is  closed,  the  Vouchers  Payable  account  is  credited  with  the  sum  of  all  the 
amounts  entered  in  the  Amount  column,  and  the  several  accounts  with 
materials  are  debited  with  the  totals  of  the  respective  columns ;  this  is 
similar  to  the  use  of  the  purchase  book  in  Set  VIII. 


Amount 

Lumber 

Veneer 

Hard¬ 

ware 

Cane 

Up¬ 

holster¬ 

ing 

Finishing 

Ma¬ 

terials 

Packing 

Supplies 

Sundry 

Factory 

Supplies 

387 

25 

387 

25 

976 

48 

976 

48 

362 

68 

362 

68 

265 

12 

265 

12 

294 

39 

294 

39 

179 

.42 

179 

42 

647 

21 

647 

21 

110 

50 

110 

50 

843 

92 

843 

92 

4066 

97 

1820 

40 

179 

42 

265 

12 

110 

50 

647 

21 

681 

64 

362 

68 

© 

<D 

© 

® 

© 

® 

© 

© 

REGISTER,  SET  IX 


456 


PRINCIPLES  OF  BOOKKEEPING 


The  voucher  register  well  illustrates  the  use  of  special  columns  in  a 
book  of  original  entry  for  analyzing  in  detail  the  entries  made  therein, 
and  for  obtaining  the  totals  to  post  to  the  ledger. 

Every  voucher  must  be  recorded  in  a  voucher  register  immediately 
after  it  is  made  out,  and  the  voucher  record  should  therefore  be  in  the 
same  numerical  sequence  as  the  vouchers  issued.  This  is  a  most 
important  point,  since  an  orderly  arrangement  enables  the  rapid  location 
of  any  particular  voucher  record  as  well  as  the  rapid  checking  of  all 
vouchers  listed. 

Postings  are  made  from  the  voucher  register  to  the  individual  credi¬ 
tor’s  accounts  in  the  creditors’  ledger,  and  the  footing  of  the  Amount 
column  is  posted  to  the  credit  of  the  Vouchers  Payable  account  in  the 
general  ledger. 

Sales  Book.  The  sales  book  used  in  this  set  is  ruled  for  recording 
the  sales  made  to  customers  in  total  rather  than  in  detail. 

In  using  the  business  forms  as  would  be  done  in  practice,  the  detail 
of  each  sale  is  recorded  on  a  sales  invoice  and  a  summary  thereof  is 
recorded  in  the  sales  book  and  posted  to  the  customer’s  account.  In 
this  set  the  orders  sent  in  by  traveling  salesmen  are  entered  in  total 
on  the  sales  invoices.  The  sales  invoices  are  usually  made  in  duplicate, 
one  copy  going  to  the  customer.  In  this  set  sales  invoices  will  not  be 
sent  to  customers.  The  copy  made  by  the  student  will  be  used  for 
obtaining  the  sales-book  data  and  then  will  be  filed  under  the  customer’s 
name.  In  some  concerns  the  copies  of  the  sales  invoices  are  filed  con¬ 
secutively  in  a  binder,  and  the  amounts  are  posted  to  the  customers’ 
accounts  directly  from  the  duplicates. 

The  total  of  the  Amount  column  of  the  sales  book  is  debited  to 
Accounts  Receivable  and  credited  to  Sales. 

Ledgers.  The  ledgers  are  the  same  as  those  used  in  Set  VIII.  The 
customers’  ledger  corresponds  to  the  sales  ledger,  and  the  creditors’ 
ledger  corresponds  to  the  purchase  ledger. 

Price  Lists.  For  the  purpose  of  detail  work  in  tins  illustrative  manu¬ 
facturing  set,  the  items  in  the  price  list  on  the  opposite  page  are  selected 
from  the  different  kinds  of  chairs  made  by  the  Madison  Chair  Co. 

Business  Forms.  Some  instructors  may  desire  to  use  business  forms 
with  this  set.  An  envelope,  separate  from  the  text,  has  been  prepared 
for  that  purpose.  This  envelope  contains  blank  voucher  forms,  sales 
invoices,  checks,  and  petty-cash  receipts,  as  well  as  a  filing  envelope. 

The  text  contains  all  material  and  instruction  necessary  for  writing 
the  entire  set,  but  the  use  of  these  forms  is  suggested  as  affording  drill 
in  handling  modern  forms. 


SET  IX.  CHAIR- MANUFACTURING  BUSINESS 


457 


SELLING  PRICE  LIST,  SET  IX 


No. 

Description 

Price  per 
Dozen 

25 

Stools 

$20 

26 

White  Enamel  Stools 

24 

50 

Child’s  Chair 

6 

57 

Child’s  High  Chair 

12 

100 

Bowback  Kitchen  Chair 

7 

200 

Box-Seat  Diner 

22 

201 

Armed  Box-Seat  Diner 

30 

240 

Cane-Seat  Diner 

28 

312 

Bedroom  Chair 

24 

313 

Bedroom  Rocker 

30 

324 

White  Enamel  Bedroom  Chair 

27 

325 

White  Enamel  Bedroom  Rocker 

33 

404 

Large  Wood-Seat  Arm  Rocker 

42 

465 

Upholstered  Rockers 

240 

510 

Office  Desk  Chair 

42 

621 

Solid  Mahogany  Straight  Chair 

324 

622 

Solid  Mahogany  Office  Desk  Chair 

348 

If  business  forms  are  used ,  observe  the  following  instructions : 

Vouchers.  The  student,  as  bookkeeper,  should  make  out  the  vouchers, 
face  and  back,  for  all  merchandise  purchases,  and  attest  the  accuracy 
of  the  amount  and  the  distribution  by  placing  his  initials  in  the  ap¬ 
propriate  space.  The  approval  of  the  other  employees  will  not  be 
obtained  in  this  set.  The  vouchers  should  be  numbered  consecutively 
and  placed  in  that  order  in  the  filing  envelope  under  Vouchers  Payable. 
As  paid,  the  vouchers  should  be  filed  numerically  in  the  Paid  Vouchers 
section  of  the  filing  envelope. 

The  appropriate  data  from  the  voucher  should  be  entered  in  the 
voucher  register. 

Sales  Invoices.  As  stated  on  the  preceding  page,  sales  invoices  will 
not  be  sent  to  customers  in  this  set.  The  copy  of  the  sales  invoice 
made  by  the  student  is  assumed  to  be  the  retained  copy,  and  is  used 
for  obtaining  the  sales-book  data  and  then  is  filed  under  the  customer’s 
name  in  the  Sales  Invoices  section  of  the  filing  envelope. 

Checks.  A  bank  account  is  not  kept  in  this  set,  but  all  cash  receipts 
are  assumed  to  be  deposited  in  the  bank  daily,  and  all  payments  except 
petty-cash  disbursements  are  to  be  made  by  checks.  Loose  checks  are 
provided  for  this  purpose.  If  the  check  is  not  given  in  payment  of  an 
invoice  or  a  voucher,  the  purpose  of  the  disbursement  should  be  written 


458 


PRINCIPLES  OF  BOOKKEEPING 


in  the  space  provided  for  Invoice.  All  checks  should  be  numbered  con¬ 
secutively,  and  those  issued  in  payment  of  vouchers  should  also  bear 
the  appropriate  voucher  number.  All  checks  should  be  signed  Madison 
Chair  Co.,  per  Student.  Checks  issued  should  be  filed  numerically  in 
the  Checks  Issued  section  of  the  filing  envelope. 

Petty  Cash  Receipts.  Receipts  should  be  obtained  for  all  disburse¬ 
ments  made  from  the  petty-cash  fund.  The  receipts  should  be  signed 
by  the  instructor  acting  for  the  designated  person  to  whom  cash  pay¬ 
ment  is  made.  Petty-cash  receipts  should  be  filed  according  to  date 
in  the  appropriate  section  of  the  filing  envelope. 

Where  the  transactions  call  for  the  use  of  any  of  these  forms,  the 
student  is  expected  to  fill  out  the  proper  form  in  the  regular  way  and 
file  it  according  to  the  directions  given. 

If  business  forms  are  not  used,  observe  the  following  instructions : 

Vouchers.  The  appropriate  data  from  the  invoices  should  be  entered 
directly  in  the  voucher  register.  The  amount  of  the  invoice  should  be 
obtained  by  figuring  extensions  and  totals  on  sheets  of  paper. 

Sales  Invoices.  The  appropriate  data  relative  to  each  sale  should  be 
entered  directly  in  the  sales  book.  The  amount  of  the  sale  should  be 
obtained  by  figuring  extensions  and  totals  on  sheets  of  paper. 

Checks.  A  bank  account  is  not  kept  in  this  set,  but  all  cash  receipts 
are  assumed  to  be  deposited  in  the  bank  daily,  and  all  payments  except 
petty-cash  disbursements  are  assumed  to  be  made  by  check.  Make  the 
usual  cashbook  entries  for  both  receipts  and  payments. 

Petty  Cash  Receipts.  Make  the  regular  petty  cashbook  entry  for  all 
payments  from  this  fund. 

WORK  FOR  FEBRUARY 

Opening  the  Set.  In  this  set  the  student  will  act  as  bookkeeper  for 
the  Madison  Chair  Co.  The  salary  is  to  be  $80  per  month. 

MEMORANDA  OF  TRANSACTIONS  FOR  FEBRUARY 

February  1 

Under  the  laws  of  the  state  of  Wisconsin,  George  Clark,  F.M.  Williams, 
E.  M.  Hadley,  W.  R.  Wood,  F.  W.  Kramer,  all  of  Madison,  Wis.,  and 
John  R.  Inman  of  Sheboygan,  Wis.,  have  formed  a  corporation,  the 
Madison  Chair  Co.,  for  the  purpose  of  purchasing  and  operating  the  busi¬ 
ness  of  the  Baker  Chair  Co.,  manufacturers  of  a  general  line  of  chairs. 
A  charter  has  been  obtained.  The  authorized  capital  stock  is  $100,000, 
divided  into  1000  shares  of  the  par  value  of  $100  each.  Subscription  to 


SET  IX.  CHAIR-MAN  UFACTURI NG  BUSINESS 


459 


the  capital  stock  of  the  company  is  as  follows:  George  Clark,  175  shares ; 
F.  M.  Williams,  175  shares;  E.  M.  Hadley,  175  shares;  F.  W.  Kramer, 
175  shares;  W.  R.  Wood,  175  shares;  John  R.  Inman,  125  shares. 

At  the  stockholders’  meeting  each  of  the  above-named  persons  wat 
elected  as  a  director  of  the  company  for  one  year.  At  a  meeting  of 
the  board  of  directors  the  following  officers  were  elected :  George  Clark, 
president;  John  H.  Inman,  vice  president  and  general  manager; 
F.  M.  Williams,-  secretary  and  treasurer. 

The  president  and  secretary-treasurer  were  each  to  receive  a  salary  of 
$150  per  month;  the  vice  president  and  general  manager,  $250  per  month. 

The  following  summary  of  the  above  memoranda  is  to  be  copied  in 
the  journal: 

Feb.  1,  19— 

Under  the  laws  of  the  state  of  Wisconsin,  a  corporation,  the  Madison 
Chair  Co.,  has  been  formed  for  the  purpose  of  purchasing  and  operating  the 
business  of  the  Baker  Chair  Co.,  manufacturers  of  a  general  line  of  chairs. 
The  authorized  capital  stock  of  the  Madison  Chair  Co.  is  $100,000. 

Note.  The  names  of  subscribers  and  incorporators,  the  number  of  shares  sub¬ 
scribed,  the  names  of  directors  and  officers,  and  the  salaries  to  be  paid  the  officers 
would  appear  in  the  appropriate  stock  books.  The  stock  books  of  the  Madison 
Chair  Co.  are  not  kept  in  this  illustrative  set. 

Make  a  journal  entry  to  debit  Subscription  and  to  credit  Capital  Stock. 


The  student  designs  the  following  classification  of  accounts  for  the 
Madison  Chair  Co. : 

Assets 

Current : 

Cash 

Petty  Cash 
Accounts  Receivable : 

Reserve  for  Bad  Debts  (valuation  account) 

Inventories : 

Finished  Goods 
Goods  in  Process 
Materials  : 

Lumber 

Veneer 

Hardware 

Cane 

Upholstering 
Finishing  Materials 
Packing  Supplies 
Sundry  Factory  Supplies 
Subscriptions 


460 


PRINCIPLES  OE  BOOKKEEPING 


Fixed : 

Real  Estate 
Buildings 

Reserve  for  Depreciation,  Buildings  (valuation  account) 
Machinery  and  Equipment 

Reserve  for  Depreciation,  Machinery  and  Equipment  (valu¬ 
ation  account) 

Automobile  Truck 

Reserve  for  Depreciation,  Automobile  Truck  (valuation  account) 
Deferred : 

Unexpired  Insurance 
Fuel  on  hand 
Office  Supplies  on  hand 
Organization  Expense 


Liabilities 

Current : 

Notes  Payable 
Vouchers  Payable 

Accrued : 

Accrued  Taxes 
Accrued  Expenses 


Proprietary  Interest 

Capital  Stock 
Surplus 

Revenue  Accounts  : 

Manufacturing 

Trading 

Administration 

Financial  Income  and  Expense 
Appropriation 
Suspense : 

Baker  Chair  Company 


Income 

Operating : 

Sales 

Nonoperating : 

Merchandise  Discount  on  Purchases 


SET  IX.  CHAIR-MANUFACTURING  BUSINESS 


461 


,.  Expense 

Operating : 

Manufacturing  : 

Factory  Labor 

Factory  Superintendence 

Heat,  Light,  and  Power 

Insurance 

Taxes 

Depreciation 

Repairs  to  Machinery  and  Equipment 
Repairs  to  Buildings 
Sundry  Factory  Expense 


Trading : 

Salesmen’s  Salaries 
Salesmen’s  Expenses 
Cartage  Outward 
Advertising 
Bad  Debts 


Administration : 

Officers’  Salaries 
Office  Salaries 
Office  Supplies,  Used 
Postage 

Telephone  and  Telegrams 
Sundry  Office  Expense 
Organization  Expense  Written  Off 

Nonoperating : 

Merchandise  Discount  on  Sales 
Interest  Paid 

Note  1.  Allow  one  third  of  a  page  for  each  of  the  material  accounts,  and  one 
fifth  of  a  page  for  each  of  the  other  general  ledger  accounts.  Do  not  open  accounts 
for  the  following  names  of  account  groupings :  Current,  Inventories,  Materials, 
Fixed,  Deferred,  Current,  Accrued,  Revenue  Accounts,  Suspense,  Operating,  Non¬ 
operating,  Operating,  Manufacturing,  Trading,  Administration,  and  Nonoperating. 

Note  2.  Upholstering  includes  tapestry,  leather,  imitation  leather,  and  filling 
materials;  Finishing  Materials  include  varnish,  paint,  and  stain;  Sundry  Factory 
Supplies  include  oils,  waste,  small  tools,,  and  other  supplies  consumable  in  the 
operation  of  a  factory. 

Each  stockholder  has  paid  for  his  subscription  by  check. 

Credit  Subscription  in  the  cashbook. 

Draw  a  cash  check  for  $50,  for  use  as  an  imprest  fund. 

If  forms  are  used,  refer  to  the  instructions  given  under  Checks  on  page  457. 

The  $50  is  to  be  entered  in  the  petty  cashbook.  See  the  first  entry  in  the  model 
petty  cashbook,  page  464. 


462 


PRINCIPLES  OF  BOOKKEEPING 


February  2 

The  manufacturing  plant  of  the  Baker  Chair  Co.  is  purchased  at 
the  following  figures: 


Real  Estate,  $1000 
Buildings,  $15,000 
Machinery  and  Equipment,  $25,000 
Unexpired  Insurance,  $450 
Fuel  on  hand,  $240 
Finished  Goods,  ready  for  market, 
$25,000 

Goods  in  Process,  through  the  fac¬ 
tory,  $35,000 


Materials  on  hand : 

Lumber,  $15,000 
Veneer,  $300 
Hardware,  $1000 
Cane,  $1000 
Upholstering,  $2000 
Finishing  Materials,  $1000 
Packing  Supplies,  $750 
Sundry  Factory  Supplies,  $2000 


Make  a  journal  entry  debiting  the  above  assets  and  crediting  Baker  Chair  Co. 

Give  the  Baker  Chair  Co.  a  check  in  payment  of  the  plant  and  the 
contents  purchased  from  them. 


February  3 

S.  B.  Hardy  and  F.  M.  Kinney  have  been  employed  as  traveling 
salesmen.  Each  is  to  receive  a  salary  of  $150  per  month  and  traveling 
expenses. 

Advance  each  of  the  traveling  salesmen  a  check  for  expenses,  $150. 

Mr.  A.  C.  Parker,  attorney,  was  the  legal  adviser  of  the  company 
at  the  time  of  incorporation.  Give  him  a  check  for  $100  for  his 
services. 

Debit  Organization  Expense. 

The  company  has  taken  out  an  additional  insurance  policy  with  the 
Niagara  Insurance  Co.  for  $5000.  Owing  to  the  location  of  the  fac¬ 
tory  and  the  combustible  material  used,  the  rate  of  insurance  is  $20 
per  thousand. 

Give  the  agent  of  the  Niagara  Insurance  Co.,  C.  W.  Walker,  a  check 
for  the  amount  of  the  premium  at  the  rate  named. 

Purchase  an  automobile  truck  from  the  General  Car  Co.  for  $1500. 
Issue  a  check  in  payment. 

February  5 

Give  Connor  &  Co.  a  check  for  $32.50  in  payment  of  their  bill  for 
a  set  of  office  books. 


Debit  Office  Supplies  on  hand. 


SET  IX.  CHAIR-MANUFACTURING  BUSINESS 


463 


Pay  Fuller  &  Co.  $10  in  cash  for  office  stationery. 

Enter  this  item  in  the  petty  cashbook  under  Office  Supplies  on  hand.  Refer  to 
the  model  on  page  464. 

Note.  If  forms  are  used,  refer  to  the  instructions  given  under  Petty  Cash 
Receipts  on  page  458.  Items  that  are  entered  in  the  petty  cashbook  are  not  recorded 
in  the  regular  cashbook  until  the  petty  cashbook  is  closed.  This  will  be  explained 
at  the  end  of  the  week. 

Buy  $5  worth  of  postage  stamps  and  pay  cash  for  them. 

Pay  Thos.  Lottridge  $5.80  in  cash  for  carpenter  work  in  repairing 
the  office. 

Enter  in  the  petty  cashbook  under  Repairs  to  Buildings. 

Sell  Wm.  Lane,  City,  for  cash,  1  doz.  chairs,  #100,  $7.  A  discount 
of  2%  is  allowed. 

If  forms  are  used,  refer  to  the  instructions  given  under  Sales  Invoices  on  page  457. 

February  6 

The  following  goods  have  been  received : 

1.  Invoice  of  veneer  from  Wisconsin  Veneer  Co.,  Three  Rivers,  Wis., 

dated  Feb.  3.  Terms:  2/10,  net  30  da.  Items  as  follows: 

79  No.  4404  — 17  x  16^  x  T3F  —  Q.O.  1/s  seats,  290 

676  No.  3456  - 18  x  17  x  T\  -  Q.O.  1/s  seats,  340 

56  No.  4404  — 17  x  16^  x  x\  —  Birch  seats,  11-10 

The  unit  price  is  per  seat. 

2.  Invoice  of  upholstering  material  from  Allen  &  Co.,  Milwaukee, 
Wis.’,  dated  Feb.  3.  Terms:  2/10,  net  60  da.  Items  as  follows: 

2  rolls  color  18  Spanish  drill,  98  ft.,  330 

3.  Invoice  of  packing  supplies  from  Sommers  &  Co.,  Chicago,  Ill., 
dated  Feb.  3.  Terms:  60  da.  net.  Items  as  follows: 

2  coils,  192#  —  176#,  Plymouth  Dry  Sisal,  368#,  19^0 

The  appropriate  data  on  each  invoice  are  to  be  entered  in  the  voucher  register. 
Refer  to  the  model  voucher  register  on  pages  454  and  455.  If  business  forms  are  used, 
refer  to  the  instructions  on  page  457  for  making  out  the  voucher. 

Issue  a  check  to  the  Chicago  and  Northwestern  Ry.  Co.  for  the  freight 
on  these  materials,  $2.61. 

This  charge  is  distributed  as  follows  :  Veneer,  $1.30  ;  Upholstering,  45  0 ;  Packing 
Supplies,  86  0. 


464 


PRINCIPLES  OF  BOOKKEEPING 


The  following  orders  have  been  received  and  filled.  Terms:  2/30, 
net  60  da.,  f.  o.  b.,  Madison,  Wis. 

W.  R.  Kelley,  Palmer: 


1  doz.  #200 

ps  doz.  #324 

TJ2  doz.  #201 

XV  doz.  #465 

D.  D.  Miller,  Reading: 

1  doz.  #25 

T\doz.  #404 

Te5  doz.  #57 

y1^  doz.  #622 

H.  S.  Blower,  Moberly: 

#  fV  doz.  #312 

TV  doz.  #325 

tT2  doz.  #313 

1  doz.  #  240 

S.  D.  Merrill,  Canton : 

1  doz.  #50 

XV  doz.  #313 

2  doz.  #100 

T22  doz.  #621 

A.  C.  Cotton,  La  Crosse: 

3  doz.  #100 

1  doz.  #240 

t62  doz.  #200 

T22  doz.  #324 

jL  doz.  #201 

T22  doz.  #325 

D.  M.  Heath,  Winona: 

4  doz.  #25 

1  doz.  #  404 

1  doz.  #26 

y^doz.  #465 

4  doz.  #240 

T<V  doz.  #510 

Enter  the  three  petty-cash-disbursement  items  in  the  cashbook  and 
draw  a  cash  check  for  their  sum.  Cas*h  the  check,  and  place  the  money 
in  the  petty-cash  fund.  Check  all  items  transferred. 


Closing  the  Petty  Cashbook.  The  following  model  illustrates  the 
manner  in  which  the  petty  cashbook,  as  used  in  this  set,  is  closed. 


Feb. 

1 

Withdrew  for  fund 

50 

5 

v/ 

Office  Supplies  on  hand 

Office  Stationery 

5 

5 

s/ 

Postage 

8 

5 

s/ 

Repairs  to  Buildings 

Carpenter  Work 

9 

6 

Check 

22 

6 

Balance 

50 

72 

72 

Feb. 

8 

Balance 

Brought  Forward 

50 

SET  IX.  CH AIK-MAX U FAC TU KING  BUSINESS 


465 


The  cashier  must  at  all  times  have  on  hand  money  or  receipts 
totaling  the  amount  of  the  petty-cash  fund.  In  order  to  bring  back 
the  petty-cash  fund  to  its  original  amount,  a  check  is  drawn  when  the 
receipts  for  petty-cash  disbursements  are  presented. 

This  method  of  handling  petty  cash  is  called  the  imprest  system.  It 
is  to  be  distinguished  from  the  method  used  in  Set  VIII  in  that 
postings  are  not  made  from  the  petty  cashbook.  One  check  is  drawn 
for  the  total  petty  disbursements  for  the  period,  and  the  amount  of  the 
fund  does  not  increase  beyond  the  stated  amount. 


Close  the  petty  cashbook  according  to  this  method. 

None  of  the  other  books  are  to  be  closed,  but  the  amounts  are  to 
be  posted  to  the  different  ledgers.  » 

Allow  one  fifth  of  a  page  for  each  account  in  both  the  creditors’ 
and  the  customers’  ledger. 

Post  to  the  general  ledger  all  the  items  in  the  G-eneral  column  of 
the  main  cashbook ;  post  all  items  from  the  sales  book  to  the  customers’ 
ledger ;  post  all  items  in  the  Amount  column  of  the  voucher  register 
to  the  credit  side  of  the  creditors’  ledger. 

This  concludes  the  work  for  one  week. 

February  8 

The  following  goods  have  been  received : 

1.  Invoice  of  hardware  from  Furniture  Spring  Co.,  Kenosha,  Wis., 
dated  Feb.  5.  Terms:  2/10,  net  30  da.  Items  as  follows: 

3351b. 

415  lb. 

485  lb. 

355  lb. 

300  lb. 

160  lb. 

2050  lb.  $7 

The  unit  price  is  per  hundred  pounds. 

2.  Invoice  of  finishing  materials  from  United  Varnish  Co.,  Chicago, 
Ill.,  dated  Feb.  6.  Terms:  6/10,  net  30  da.  Items  as  follows: 

5  bbl.,  260  gal.,  Dipping  $0.60 

4  bbl.,  205  gal.,  Pale  Flowing  Varnish  1.10 

1  bbl.,  50  gal.,  White  Maple  Undercoat  1.50 

If  forms  are  used;  make  out  the  vouchers  according  to  the  directions  already  given. 


466 


PRINCIPLES  OE  BOOKKEEPING 


Issue  a  check  to  the  Chicago,  Milwaukee  and  St.  Paul  Ry.  Co.  for 
freight  on  these  invoices,  $4.27. 

This  charge  is  distributed  as  follows  :  Hardware,  $2.86  ;  Finishing  Material,  $1.41. 

Sell  Geo.  Provo,  for  cfish,  1  doz.  #240,  $28.  The  regular  discount 
of  2  °Jo  is  allowed. 

February  0 

Remit  checks  in  payment  of  Voucher  Nos.  1  and  2,  less  discount. 

Note.  If  forms  are  used,  the  appropriate  spaces  on  the  voucher  check  relative  to 
the  voucher  should  be  filled  out.  In  making  out  a  voucher  check  for  Voucher  No.  1, 
for  example,  the  following  spaces  would  be  filled  in  with  the  data  stated  in  paren¬ 
thesis :  Voucher  No.  (1);  Invoices  (Feb.  3,  $259.05);  Distribution  (Veneer);  Cash 
Discount  (2/10,  $5.18);  Net  ($253.87).  Other  spaces  on  the  form  should  be  filled 
out  in  the  usual  way. 

Pay  50  in  cash  for  a  telegram  sent  to  S.  B.  Hardy. 

The  following  orders  have  been  received  and  filled.  Terms:  2/30, 
net  60  da. 

E.  T.  Fuller,  Leland : 


4  doz.  #100 

T%  doz.  #312 

3  doz.  #200 

•j-V  doz.  #313 

ft  doz.  #201 

T'j  doz.  #404 

C.  C.  McClure,  Beloit: 

ft  doz.  #25 

Tv  doz.  #312 

ft  doz.  #26 

TV  doz.  #313 

5  doz.  #100 

TV  doz.  #510 

1  doz.  #240 

T'¥  doz.  #622 

Henry  Lee,  Janesville: 

ft  doz.  #50 

/j  doz.  #  200 

1  doz.  #57 

yJj  doz.  #201 

2  doz.  #100 

TV  doz.  #325 

February  10 

Issue  a  check  to  J.  F.  Tyrell  for  repairs 

to  buildings. 

The  following  orders  have  been  received  and  filled. 

net  60  da. 

A.  B.  Smith,  Hastings : 

2  doz.  #25 

ft  doz.  #312 

1  doz.  #26 

ft  doz.  #313 

12  doz.  #100 

ft  doz.  #324 

4  doz.  #200 

ft  doz.  #325 

ft  doz.  #201 

ft  doz.  #465 

Terms:  2/30, 


SET  IX.  CHAIR-MANUFACTURING  BUSINESS 


467 


Geo.  H.  Sanford,  Red  Wing: 

5  doz.  #100 
2  doz.  #240 
1  doz.  #404 

Terms:  special,  4/10,  2/BO,  net  60  da. 


A  doz.  #465 
A  doz.  #510 
A  doz.  #622 


F.  M.  Caswell,  City : 

A  doz.  #25 
A  doz.  #26 
A  doz.  #50 
A  doz.  #57 


2  doz.  #100 
1  doz.  #200 
A  doz.  #201 
A  doz.  #404 


February  11 

The  following  orders  sent  in  by  F.  M.  Kinney  have  been  filled  and 
shipped.  Terms:  2/30,  net  60  da. 

J.  B.  Washburn,  Rockford,  $1127.50 
W.  L.  Merriam,  Belvidere,  458.25 
B.  R.  Leith,  Elgin,  2027.75 
J.  B.  Sampson,  Aurora,  446.50 

Note.  The  detail  of  orders  sent  in  by  salesmen  are  not  given  in  this  illustrative 
set,  but  the  sales  are  to  be  recorded  in  the  regular  way.  If  forms  are  used,  write 
as  per  salesman's  order  on  each  sales  invoice. 


February  12 

The  following  orders  sent  in  by  S.  B.  Hardy  have  been  filled  and 
shipped.  Terms:  2/30,  net  60  da. 

Iowa  Furniture  Co.,  Des  Moines,  $2489.25. 

Northern  Furniture  Co.,  Fort  Dodge,  $781.50. 

Masters  &  Co.,  Marshalltown,  $1027.25. 

Peterson  &  Co.,  Council  Bluffs,  $928.75. 

Nebraska  Furniture  Co.,  Omaha,  $1748.85. 

February  13 

Remit  a  check  in  payment  of  Voucher  No.  4,  less  discount. 

D.  D.  Miller  sends  his  check  in  payment  of  the  invoice  dated  Feb.  6, 
less  discount. 

The  pay  roll  for  the  factory  labor  for  the  two  weeks  totals  $1050.62. 
Issue  a  cash  check  for  the  amount  and  make  the  proper  entry  in  the 
cashbook. 


468 


PRINCIPLES  OF  BOOKKEEPING 


The  Pay  Roll.  A  form  of  pay  roll  is  shown  in  the  following  illus¬ 
tration.  These  forms  differ  widely  in  different  lines  of  business,  but 
the  important  facts  to  be  recorded  are  given  on  this  model  form. 


PAY-ROLL  SHEET 


Give  the  engineer,  Frank  Dames,  a  check  in  payment  of  one  half 
a  month’s  services,  $65. 

Debit  Heat ,  Light,  and  Power. 

Give  the  truck  driver,  John  Loring,  a  check  in  payment  of  one  half 
a  month’s  services,  $40. 

Debit  seven  eighths  of  this  amount*  to  Cartage  Outward.  Debit  the  remainder 
to  the  following  accounts:  Veneer,  $1.25;  Upholstering,  35  ^ ;  Packing  Supplies,  $1; 
Hardware,  $1.25  ;  Finishing  Material,  $1.15. 

Give  each  of  the  officers  a  check  in  payment  of  one  half  a  month’s 
services,  and  also  make  out  a  check  for  yourself  for  one  half  a  month’s 
services  as  bookkeeper. 

Debit  one  half  the  salary  of  the  vice  president  and  general  manager  to  Factory 
Superintendence. 

Post  the  week’s  work.  Open  accounts  with  all  new  names  that 
appear  in  the  voucher  register  and  the  sales  book. 

February  15 

Remit  check  in  payment  of  Voucher  No.  5,  less  discount.  Checks 
have  been  received  from  the  following  persons:  S.  D.  Merrill,  for  the 
invoice  of  Feb.  6 ,  less  discount ;  D.  M.  Heath,  for  the  invoice  of  Feb.  6 , 
less  discount. 

Pay  cash  for  sundry  petty  office  expense  items,  $2.50. 

The  following  orders  have  been  received  and  filled.  Terms:  2/30, 
net  60  da. 


SET  IX.  CHAIR-MANUFACTURING  BUSINESS 


469 


W.  R.  Kelley,  Palmer: 

2  doz.  #200 
2doz.  #404 

D.  D.  Miller,  Reading: 

T\  doz.  #324 
T\  doz.  #325 

H.  S.  Blower,  Moberly: 

3  doz.  #100 
1  doz.  #240 

February  16 

The  following  materials  have  been  received : . 

I.  Invoice  of  lumber  from  Thomas  Lumber  Co.,  St.  Louis,  Mo.,  dated 
Feb.  8.  Terms:  2/10,  60  da.,  less  freight.  Items  as  follows: 

14980  ft.  1^"  No.  1  Common  Quartered  Red  Oak  $48 
The  unit  price  is  j oer  thousand  feet. 

2.  Invoice  of  cane  from  Rattan  &  Reed  Manufacturing  Co.,  Brook¬ 
lyn,  N.Y.,  dated  Feb.  8.  Terms:  1/10,  net  30  da.  Items  as  follows: 

20  M  ft.  6  x  4i  Reed  $5 

10  M  ft.  7i  x  5  Reed  5 

3.  Invoice  of  hardware  from  Cleveland  Screw  and  Tack  Co.,  Chicago, 
Ill.,  dated  Feb.  8.  Terms:  2/10,  net  30  da.  Items  as  follows: 

Oval  Hd.  Brt.  Chair  Wood  Screws,  Bulk 


500  gro.  li  x  11 

$1.40 

100  gro.  2  x  14 

2.45 

25  gro.  2i  x  14 

2.65 

Less  72 i%,  20%,  10%,  2%,  i% 

Flat  Hd.  Brt.  Wood  Screws,  Bulk 

200  gro.  1  x  11 

1.30 

200  gro.  i  x  11 

1.50 

100  gro.  2  x  14 

2.45 

Less  75%,  20%,  10%,  2%,  1% 

The  unit  price  is  per  gross . 

Extend  the  items,  obtain  the  total  list  price  value  of  each  kind  of  screws 

and  deduct  the  respective  trade  discounts  before  entering  in  the  voucher  register. 


tT2  doz.  #465 
TV  doz.  #621 


*  doz.  #621 
TV  doz.  #622 


T62  doz.  #404 
Tv  doz.  #510 


Trade  Discount,  Explained.  Trade  discount  is  a  discount  allowed 
from  the  published  catalogue  and  list  price  which  enables  a  concern 
to  change  the  selling  price  by  altering  the  trade  discount  rather  than 


470 


PRINCIPLES  OF  BOOKKEEPING 


by  changing  the  published  price.  Trade  discount  usually  is  deducted 
before  the  invoice  cost  is  entered  in  the  books.  To  illustrate,  the  list 
price  of  an  article  may  be  $10,  less  a  trade  discount  of  40%,  20%, 
and  10%.  The  actual  invoice  cost,  the  amount  at  which  it  is  entered 
in  the  books,  is  $4.32,  obtained  as  follows: 

List  price  $10  less  40%  =  $6  ;  $6  less  20%  =  $4.80 ;  $4.80  less  10% 
=  $4.32,  the  selling  price  of  the  article.  If  the  increased  cost  of  pro¬ 
duction  made  it  necessary  to  increase  the  selling  price  to  $4.56,  the 
list  price  of  $10  may  be  retained,  but  the  percentages  of  the  trade 
discount  changed  to  40%,  20%,  and  5%. 


Issue  a  check  to  the  Chicago  and  Northwestern  Ry.  Co.  for  freight 
on  these  shipments,  $156.19. 

Debit  Thomas  Lumber  Co.  for  the  freight  on  the  carload  of  lumber,  $149.27.  The 
remainder  of  this  charge  is  distributed  as  follows :  Cane,  $4.76  ;  Hardware ,  $2.16. 


February  17 

The  following  orders  have  been  received  and  filled.  Terms :  2/30, 
net  60  da. 


A.  C.  Cotton,  La  Crosse : 

3  doz.  #100 
A  doz.  #312 
A  doz.  #313 


A  doz.  #465 
A  doz.  #510 
A  doz.  #622 


D.  M.  Heath,  Winona: 

2  doz.  #25 
A  doz.  #57 
1  doz.  #200 


A  doz.  #404 
A  doz.  #621 
A  doz.  #622 


Remit  a  check  in  payment  of  Voucher  No.  6. 

Note.  Subtract  the  freight  charge  before  ascertaining  the  discount. 


Remit  checks  in  payment  of  Vouchers  Nos.  7  and  8,  less  discounts. 
Pay  J.  K.  Hart  cash,  for  repairs  to  factory  equipment,  $8.75. 


February  18 


Give  the  Home  Printing  Co.  a  check  in  payment  of  a  printing  bill, 
$43.65. 

Debit  Office  Supplies  on  hand. 

Checks  have  been  received  from  the  following  persons :  W.  R.  Kelley, 
for  the  invoice  of  Feb.  6 ,  less  discount ;  H.  S.  Blower,  for  the  invoice 
of  Feb.  6 ,  less- discount. 


SET  IX.  CHAIR-MANUFACTURING  BUSINESS 


471 


The  packing  materials  ordered  from  the  Excelsior  Pad  Co.,  Appleton, 
Wis.,  have  been  received.  The  invoice  is  dated  Feb.  15.  Terms:  30  da. 
net.  Items  as  follows: 


7500 

5  x  46  Plain  Pads 

$6.75 

2500 

5  x  80  Plain  Pads 

13.40 

5000 

5  x  40  Plain  Pads 

5.85 

500  18  x  24  Plain  Pads 

13.90 

The  unit  price  is  per  thousand. 


February  19 

The  leather  ordered  of  the  Powell  Leather  Co.,  Middletown,  N.Y., 
has  been  received.  The  invoice  is  dated  Feb.  10.  Terms:  2/10,  1/30, 
net  60  da.  Items  as  follows : 

50  Hides  #1  Fancy  Splits  Color  102,  2842  ft.,  140 
40  Hides  #1  D.  B.  Color  102  gr.  112,  1974  ft.,  190 

The  unit  price  is  per  foot. 

Pay  $4.37  for  freight  on  this  shipment,  and  also  $1.10  for  the  freight 
on  the  shipment  of  furniture  pads. 

Issue  one  check  to  the  Chicago  and  Northwestern  Ry.  Co.  for  the  sum  of  these 
items. 

The  following  orders  sent  in  by  F.  B.  Hardy  have  been  filled  and 
shipped.  Terms:  2/30,  net  60  da. 

G.  M.  McHose,  Cedar  Rapids,  $1500 
W.  A.  Heilman,  Davenport,  $1350 
J.  B.  Coffman,  Rock  Island,  $875 

February  20 

Issue  a  check  to  the  Eureka  Coal  Co.  for  40  T.  coal  at  $4.50  per  ton. 

F.  M.  Caswell  pays  $70.56  in  full  of  his  account. 

Transfer  the  petty-cash  accounts  to  the  cashbook,  issue  a  check  for 
their  sum,  and  close  the  petty  cashbook. 

Post  the  week’s  work. 

February  23 

Receive  checks  to  apply  on  account  from  the  following:  J.  B.  Wash¬ 
burn,  Rockford,  $490 ;  B.  R.  Leith,  Elgin,  $882. 

Note  the  discounts  for  which  these  customers  should  be  credited. 

Issue  a  check  to  the  Badger  Pharmacy  for  sundry  factory  and  office 
supplies  to  date  $43.18. 

Debit  Sundry  Factory  Expense,  $30.14 ;  Sundry  Office  Expense,  $13.04. 


472 


PRINCIPLES  OP  BOOKKEEPING 


February  24 

The  following  materials  have  been  received: 

1.  Invoice  of  lumber  from  Haley  &  Co.,  Evansville,  Ind.,  dated 
Feb.  12.  Terms:  2/15,  60  da.,  less  freight.  Items  as  follows: 

21,906  ft.  3"  #1  Common  Quartered  White  Oak  $65 

2.  Invoice  of  finishing  materials  from  United  Varnish  Co.,  Chicago, 
dated  Feb.  16.  Terms:  6/10,  net  30  da.  Items  as  follows: 

25  gal.  Liquid  Flat  $1. 

95  lb.  801  Red  Mahogany  Stain  2.50 

100  lb.  803  Brown  Mahogany  Stain  2.40 

3.  Invoice  of  upholstering  material  from  Campbell  &  Co.,  Louis¬ 
ville,  Ky.,  dated  Feb.  17.  Terms:  30  da.  net.  Items  as  follows: 

3  sacks  New  Dark  Cotton  Filling 
105#,  115#,  108#  =  328#  @  40 

4.  Invoice  of  hardware  from  Furniture  Spring  Co.,  Kenosha,  Wis., 
dated  Feb.  18.  Terms:  2/10,  30  da.  net.  Items  as  follows: 

185  lb.  20"  li  Drop  3  Row  Slats 
176  lb.  20"  li  Drop  2  Row  Slats 
735  lb.  18^-"  2  Drop  3  Row  Slats 
210  lb.  20"  2  Drop  2  Row  Slats 
110  lb.  20i"  3  Drop  3  Row  Slats 
1416  lb.  $4.75 

Issue  a  check  to  the  Chicago,  Milwaukee  and  St.  Paul  Ry.  Co.  for 
the  freight  on  the  above  materials,  $131.94. 

Debit  Haley  Sf  Co.  with  the  freight  on  the  carload  of  lumber,  $128.04.  The 
remainder  of  this  charge  is  distributed  as  follows :  Finishing  Material ,  $1.72 ; 
Upholstering,  70  0;  Hardware,  $1.48. 


February  25 


The  following  orders  have  been  received  and  filled, 
net  60  da. 

C.  C.  McClure,  Janesville: 

doz.  #621 


A.  B.  Smith,  Hastings: 

3  doz.  #100 
2  doz.  #200 
T\  doz.  #201 

Geo.  H.  Sanford,  Red  Wing: 

doz.  #200 


Terms:  2/30, 

doz.  #622 

1  doz.  #404 
TV  doz.  #324 
A  doz.  #325 

TV  doz.  #201 


SET  IX.  C HAIR-MAX U FAC TU RING  BUSINESS 


473 


F.  M.  Caswell,  City: 

*  doz.  #25 
t22  doz.  #26 
TL  doz.  #325 

Henry  Lee,  Janesville: 

t62  doz.  #50 
t62  doz.  #57 
2  doz.  #100 


tT2  doz.  #404 
tJ2  doz.  #465 
J2  doz.  #510 


t22  doz.  #404 
yL  doz.  #510 
TV  doz.  #622 


February  26 

The  following  orders  sent  in  by  F.  M.  Kinney  have  been  filled  and 
shipped.  Terms:  2/30,  net  60  da. 

A.  B.  Langlie,  Danville,  $1748.50. 

J.  K.  Netherwood,  Decatur,  $1137.28. 

W.  B.  Munsey,  Springfield,  $642.87. 

Wadsworth  &  Co.,  St.  Louis,  $3841.27. 

The  following  materials  have  been  received: 

1.  Invoice  of  upholstering  material  from  the  Ohio  Leather  Co.,  Cin¬ 
cinnati,  Ohio,  dated  Feb.  20.  Terms  :  2/10,  net  30  da.  Items  as  follows : 

100  seats  No.  641,  Spanish,  28  0 

2.  Invoice  of  hardware  from  the  Ohio  Nut  Co.,  Cleveland,  Ohio, 
dated  Feb.  20.  Terms:  1/10,  net  30  da.  Items  as  follows: 

2700  special  "  T  ”  Hd.  Bolts,  1  x  1^  $3.20 

10200  regular  "  T  ”  Hd.  Shaft  Bolts,  1  x  4  3.20 

Less  60%,  5% 

The  unit  price  is  per  hundred. 

Deduct  the  trade  discount  from  the  sum  of  the  two  items. 

Issue  a  check  to  the  Chicago  and  Northwestern  By.  Co.  for  freight  on 
these  materials,  $2.48. 

This  is  distributed  as  follows:  Upholstering ,  74^;  Hardware,  $1.74. 

Pay  Vouchers  Nos.  11  and  12,  less  discounts. 

Discount  the  company’s  30-day  note  for  $4000  at  The  Union  Bank, 
interest  at  6%. 

February  27 

Pay  Voucher  Nos.  14,  15,  and  16,  less  discounts. 

The  following  materials  have  been  received : 

1.  Invoice  of  lumber  from  Warren  &  Co.,  Memphis,  Tenn.,  dated 
Feb.  18.  Terms:  2/10,  60  da.  net,  less  freight.  Items  as  follows: 
18,730  ft.  1"  #1  Common  Bed  Gum,  $32 


474 


PRINCIPLES  OF  BOOKKEEPING 


2.  Invoice  of  hardware  from  Cleveland  Screw  and  Tack  Co.,  Chicago, 
dated  Feb.  14.  Terms:  2/10,  net  30  da.  Items  as  follows: 

Flat  Hd.  Brt.  Wood  Screws,  Bulk 


100  gro.  f  x  9 

$1. 

100  gro.  |  x  10 

1.15 

100  gro.  1  x  11 

1.30 

100  gro.  1  x  12 

1.40 

100  gro.  lj  x  11 

1.40 

100  gro.  2J  x  14 

2.65 

Less  75%,  20%,  10%,  2%,  £% 

3.  Invoice  of  lumber  from  Thomas  Lumber  Co.,  St.  Louis,  Mo., 
dated  Feb.  20.  Terms:  2/10,  60  da.  net,  f.o.b.,  Madison,  Wis.  Items 
as  follows : 

19,048  ft.  f"  #1  Common  Quartered  Red  Oak  $45.50 

4.  Invoice  of  packing  materials  from  Excelsior  Pad  Co.,  Appleton, 
Wis.,  dated  Feb.  25.  Terms:  30  da.  net.  Items  as  follows: 

5600  16"  x  18"  Plain  Pads  $9.15 

36750  5"  x  34"  Plain  Pads  5.05 

Issue  a  check  to  the  Chicago,  Milwaukee  and  St.  Paul  Ry.  Co.  for 
freight  on  the  above  items,  $309.65. 

Distribute  as  follows  :  $145.20  on  Warren  &  Co.’s  shipment ;  $160.95  on  Thomas 
Lumber  Co.’s  shipment;  $2.05  for  hardware;  and  $1.45  for  packing  supplies. 

Pay  Voucher  Nos.  17  and  19,  less  discounts. 

Buy  postage  stamps,  $5. 

Pay  Sarah  Roberts  cash,  for  cleaning  the  office,  $3.25. 

Receive  check  from  A.  C.  Cotton,  in  payment  of  the  invoice  of  Feb.  6 , 
less  discount. 

The  pay  roll  for  the  factory  labor  for  the  two  weeks  amounts  to 
$1127.45. 

Issue  checks  to  the  engineer,  to  the  officers,  and  to  yourself  for  two 
weeks’  services. 

Make  the  same  charges  and  distribution  as  on  Feb.  13. 

Pay  the  truck  driver  for  his  services  for  the  past  two  weeks,  $40. 

Debit  one  half  to  Cartage  Outward.  Debit  each  of  the  following  accounts  with 
the  respective  sums :  Hardware,  $10  ;  Cane,  $1 ;  Upholstering,  $4  ;  Packing  Supplies, 
$2  ;  Finishing  Materials,  $3. 

Pay  for  advertising  in  the  Furniture  Review ,  by  check,  $200. 

Send  checks  to  each  of  the  traveling  salesmen  for  this  month’s 
salary,  $150. 


SET  IX.  CHAIR-MANUFACTURING  BUSINESS 


475 


Close  the  petty  cashbook. 

Post  the  week’s  work. 

Present  all  books  to  the  instructor  for  inspection. 

Closing  the  Set.  Close  the  main  cashbook.  Post  the  columnar  totals 
to  the  ledger. 

Close  the  sales  book,  and  post  the  total  to  the  debit  of  Accounts 
Receivable  and  to  the  credit  of  Sales. 

Close  the  voucher  register.  Consult  the  model  on  pages  454  and  455. 

From  the  voucher  register  post  the  footing  of  the  Amount  column  to 
the  credit  of  Vouchers  Payable  in  the  general  ledger,  and  debit  the  foot¬ 
ing  of  each  distribution  column  to  its  proper  account  in  the  general 
ledger.  This  completes  the  posting  to  the  general  ledger. 

As  the  sales  book  and  the  Amount  column  of  the  voucher  register 
have  been  posted  to  the  customers’  ledger  and  to  the  creditors’  ledger, 
and  the  items  from  the  Accounts  Receivable  and  Vouchers  Payable 
columns  of  the  'main  cashbook  have  been  posted  at  the  end  of  each 
week,  all  posting  is  now  completed. 

The  student  will  now  take  a  trial  balance  from  the  general  ledger. 
Have  it  approved  by  the  instructor. 

Make  an  abstract  of  the  creditors’  ledger.  Prove  it  with  the  Vouchers 
Payable  in  the  general  ledger. 

Make  an  abstract  of  the  customers’  ledger.  Prove  it  with  the 
Accounts  Receivable  in  the  general  ledger. 

Journal  entries  should  be  made  and  posted,  recognizing  the  follow¬ 
ing  facts: 

The  insurance  for  the  month  is  $15. 

The  office  supplies  used  during  the  month  are  valued  at  $23.47. 

The  fuel  on  hand  is  inventoried  at  $170. 

The  month’s  share  of  taxes  is  estimated  at  $40. 

The  telephone  charge  for  the  month  is  $9. 

The  directors  order  that  the  full  amount  of  the  organization  expense  be 
considered  as  an  administrative  expense  of  the  month. 

Depreciation  is  to  be  figured  at  the  following  rates  per  annum : 


Buildings 

5% 

Machinery  and  Equipment 

15% 

Automobile  Truck 

18% 

Reserve  1%  of  the  sales  for  bad  debts. 

The  sundry  factory  supplies  used  during  the  month  were  chargeable  as 
follows : 


Heat,  Light,  and  Power 
Sundry  Factory  Expense 


$185. 

267.22 


476 


PRINCIPLES  OF  BOOKKEEPING 


The  inventories  of  Finished  Goods,  Goods  in  Process,  and  the  manufac¬ 
turing  materials  are  as  follows : 


Finished  Goods 

Goods  in  Process 

Lumber 

Veneers 

Hardware 

Cane 

Upholstering 
Finishing  Materials 
Packing  Supplies 


$20489.76 


4927.21 

9721.47 

297.41 

1121.19 

987.47 

1246.82 

785.34 

739.65 


Compile  the  revenue  accounts  with  Manufacturing ,  Trading,  Adminis¬ 
tration,  Financial  Income  and  Expense,  and  Appropriation,  as  follows : 

Close  the  accounts  with  Finished  Goods,  Goods  in  Process,  the 
several  material  items,  and  the  manufacturing  expense  accounts  into 
the  Manufacturing  account. 

Place  the  closing  inventories  of  Finished  Goods,  Goods  in  Process,  i 
and  the  several  material  items  upon  the  ledger  by  crediting  their  sum 
to  the  Manufacturing  account. 

Transfer  the  balance  of  the  Manufacturing  account,  representing  the 
cost  of  goods  sold,  to  the  Trading  account. 

Note.  If  it  is  desired  to  show  in  the  Manufacturing  account  the  cost  of  goods 
made  rather  than  those  sold,  the  Finished  Goods  inventories  should  be  closed  into  i 
the  Trading  account.  The  operating  statement  should  show  not  only  the  cost. of 
the  goods  made  but  also  the  cost  of  the  goods  sold  (see  page  445). 

Close  the  trading  expense  accounts  into  the  Trading  account. 

Close  the  Sales  account  into  the  Trading  account. 

Transfer  the  balance  of  the  Trading  account  to  the  Administration 
account. 

Close  the  administration  expense  accounts  into  the  Administration 
account. 

Transfer  the  balance  of  the  Administration  account  to  the  Appropria¬ 
tion  account. 

Close  the  financial  income  and  expense  accounts  into  the  Financial  \ 
Income  and  Expense  account,  and  transfer  the  balance  of  this  account  ! 
to  the  Appropriation  account. 

Transfer  the  balance  of  the  Appropriation  account  to  the  Surplus 
account. 

Close  the  general-ledger  accounts. 

Compile  the  operating  and  the  financial  statements  for  the  month. 

Hand  in  all  books  to  the  instructor  for  approval. 


CHAPTER  XLI 


THE  CONVERSION  OF  A  PARTNERSHIP  INTO  A  CORPORATION 


The  entries  to  be  made  in  recording  the  conversion  of  a  partnership 
into  a  corporation  depend  upon  whether  new  books  are  to  be  opened 
for  the  corporation  or  whether  the  old  partnership  books  are  to  be 
continued. 

To  illustrate  the  entries,  assume  that  the  financial  statement  of  the 
partnership  of  Brown  &  Clark,  which  is  to  be  converted  into  a  corpora¬ 
tion  called  the  Brown  &  Clark  Co.,  is  as  follows,  and  that  the  capital 
stock  of  the  corporation  is  to  be  the  same  as  the  total  investment  in  the 
partnership : 

Assets 


Cash 

$1000 

Accounts  Receivable 

5000 

Merchandise 

15000 

Furniture  and  Furnishings 

1500 

$22500 

Liabilities 

Accounts  Payable  2500 

Proprietary  Interest 

J.  C.  Brown,  Investment  $7000 

L.  A.  Clark,  Investment  13000 

$20000 


Opening  New  Books.  In  case  new  books  are  to  be  opened,  the  follow¬ 
ing  entries  should  be  made  in  order: 

1.  The  old  books  should  be  closed,  and  some  record,  clearly  indi¬ 
cating  that  the  business  has  been  transferred  to  a  corporation,  should 
appear  in  them.  These  entries  for  the  partnership  of  Brown  &  Clark 
are  as  follows: 


The  Brown  &  Clark  Co. 

Cash 

Accounts  .Receivable 
Merchandise 

Furniture  and  Furnishings 

To  record  the  transfer  of  the  assets 
of  the  partnership  of  Brown  &  Clark  to 
the  corporation,  the  Brown  &  Clark  Co. 

477 


j  22500 


1000 

5000 

15000 

1500 


478 


PRINCIPLES  OF  BOOKKEEPING 


Accounts  Payable 

J.  C.  Brown,  Investment 

L.  A.  Clark,  Investment 

The  Brown  &  Clark  Co. 

To  record  the  assumption  of  the  lia¬ 
bilities  of  the  partnership  of  Brown  & 
Clark  by  the  corporation,  the  Brown  & 
Clark  Co.,  and  to  close  the  proprietary- 
interest  accounts. 


2.  In  opening  the  new  books  of  the  corporation  the  records  should 
clearly  indicate  that  the  assets  and  the  liabilities  were  those  of  the 
partnership,  now  converted  into  the  corporation.  These  entries  for 
the  Brown  &  Clark  Co.  are  as  follows : 


Cash 

1000 

Accounts  Receivable 

5000 

Merchandise 

15000 

Furniture  and  Furnishings 

1500 

Brown  &  Clark 

22500 

To  record  the  assets  which  were  re¬ 

ceived  from  the  partnership  of  Brown  & 
Clark. 

Brown  &  Clark 

22500 

Accounts  Payable 

2500 

Capital  Stock 

20000 

To  record  the  liabilities  of  the  partner¬ 
ship  of  Brown  &  Clark  assumed  by  the 
corporation,  and  to  open  the  proprietary- 
interest  account  of  the  corporation. 

Continuing  Partnership  Books.  In  case  the  partnership  books  are  to 
be  continued  by  the  corporation,  the  only  point  to  consider  is  the 
changing  of  the  proprietary-interest  account.  The  journal  entry  in  the 
partnership  books  for  accomplishing  this  purpose  is  as  follows : 


J.  C.  Brown,  Investment 
L.  A.  Clark,  Investment 
Capital  Stock 

To  record  the  transfer  of  the  proprie¬ 
tary  interest  of  the  business  from  the 
partnership  of  Brown  &  Clark  to  the 
corporation  of  the  Brown  &  Clark  Co. 


7000 

13000 


20000 


INCORPORATING  A  PARTNERSHIP 


479 


Capital  Stock  in  Excess  of  Partnership  Investment.  Frequently  the 
capital  stock  of  a  corporation  is  a  larger  amount  than  is  represented  by 
the  proprietary  interest  accounts  of  the  partnership  which  is  being 
converted  into  a  corporation.  The  increased  capital  stock  may  be  due 
to  the  investment  of  additional  capital,  to  the  partners  receiving  a 
larger  amount  of  capital  stock  than  is  represented  by  their  respective 
investment  accounts,  or  to  a  combination  of  these  causes. 

Investment  of  Additional  Capital.  To  illustrate,  assume  that  Brown 
&  Clark  decide  that  they  need  additional  capital,  and  discuss  their 
plans  with  F.  M.  Marling,  who  agrees  to  subscribe  to  $5000  capital 
stock  of  the  corporation,  and  the  capital  stock  is  therefore  increased 
to  $25,000.  If  the  corporation  were  opening  new  ‘books,  the  following 
journal  entry  would  be  necessary  in  addition  to  those  appearing  under 
2  on  the  preceding  page. 

Subscription 

Capital  Stock 

Subscription  to  the  stock  of  the  cor¬ 
poration,  per  subscription  book. 

If  the  corporation  were  to  continue  using  the  partnership  books,  the 
journal  entry  necessary  to  record  the  changes  in  organization  and  capital 
invested  would  be  as  follows: 

J.  C.  Brown,  Investment 
L.  A.  Clark,  Investment 
Subscription 

Capital  Stock 

To  record  the  transfer  of  the  pro¬ 
prietary  interest  of  the  business  to  the 
Brown  &  Clark  Co.,  and  to  record  the 
subscription  to  the  capital  stock  for 
the  increased  amount. 

Good  Will.  Should  Brown  &  Clark  decide  that  the  condition  of  the 
business  warrants  their  taking  more  stock  in  the  corporation  than  they 
had  invested  in  the  partnership,  the  excess  is  considered  as  good  will, 
and  the  capital  stock  of  the  corporation  is  increased  by  this  amount. 
One  may  find  many  illustrations  of  this  method  of  placing  Grood  Will 
upon  the  books.  To  illustrate,,  assume  that  Brown  &  Clark  decide  to 
value  the  good  will  of  their  business  at  $10,000.  If  the  corporation 
were  opening  new  books,  the  following  journal  entry  would  be  neces¬ 
sary  in  addition  to  those  appearing  under  2,  on  the  preceding  page. 


7000 

13000 

5000 


25000 


5000 


5000 


480 


PBINCIPLES  OP  BOOKKEEPING 


Good  Will 

Capital  Stock 

To  record  the  good  will  of  the  partner¬ 
ship  of  Brown  &  Clark  and  of  the  stock 
issued  in  payment  thereof. 


10000 


10000 


The  amount  received  for  the  good  will  is  divided  between  the 
partners  in  the  proportion  in  which  they  share  profits  and  losses. 

The  division  of  the  amount  received  for  the  good  will  need  not 
necessarily  be  recorded  on  the  partnership  books.  If  it  is  desired  to 
record  it,  the  entry  in  this  case,  assuming  profits  and  losses  are  shared 
equally,  is  as  follows  : 


Good  Will 

10000 

J.  C.  Brown,  Investment 

5000  j 

L.  A.  Clark,  Investment 

5000 

To  record  the  amount  received  for  the 

good  will  on  the  sale  of  the  business  to 
the  Brown  &  Clark  Co. 

The  entry  then  necessary  to  change  the  partnership  books  to  those 
of  the  corporation  is  as  follows : 

J.  C.  Brown,  Investment 
L.  A.  Clark,  Investment 
Capital  Stock 

To  record  the  transfer  of  the  proprie¬ 
tary  interest  of  the  business  to  the 
Brown  &  Clark  Co. 

If  the  corporation  were  to  continue  using  the  partnership  books,  the 
journal  entry  necessary  to  record  the  necessary  facts  would  be  as  follows : 


J.  C.  Brown,  Investment 

7000 

L.  A.  Clark,  Investment 

13000 

Good  Will 

10000 

Capital  Stock 

30000 

To  record  the  transfer  of  the  pro¬ 

prietary  interest  of  the  business  to  the 

Brown  &  Clark  Co.,  and  the  estimated 

good  will  of  the  business. 

Investment  of  Additional  Capital  and  Good  Will.  Should  additional 
capital  be  subscribed  by  outsiders  and  should  the  members  of  the  part¬ 
nership  also  increase  their  own  holdings,  in  payment  of  the  firm’s  good 
will,  both  Subscription  and  Good  Will  accounts  would  appear  as  assets 
in  the  books  of  the  corporation,  while  the  Capital  Stock  account  would 


12000 

18000 


30000 


INCORPORATING  A  PARTNERSHIP 


481 


stand  credited  for  the  amount  issued  to  all  stockholders.  The  journal 
entries  to  record  these  facts  would  merely  be  combinations  of  the  entries 
just  given  for  each  condition  existing  alone. 

Division  of  Stock.  In  a  partnership  converted  into  a  corporation,  in 
which  the  profits  were  not  shared  in  proportion  to  the  capital  contrib¬ 
uted,  the  capital  stock  should  be  so  divided  that  each  partner  might 
have  equitable  voice  in  the  management  of  the  business  and  at  the 
same  time  receive  returns  upon  his  investment. 

It  is  not  necessary  to  record  the  details  of  the  division  or  the  owner¬ 
ship  of  the  capital  stock  in  the  financial  books  of  account ;  such  facts  are 
recorded  in  the  appropriate  stock  record  book.  In  all  the  entries  given 
above  it  is  assumed  that  the  record  of  stock  ownership  would  be  kept 
in  the  stock  books,  so  that  it  would  agree  with  the  facts  in  each  case. 

Conversion  of  Sole  Proprietorship  into  a  Corporation.  The  entries  for 
recording  the  transfer  of  a  business  conducted  as  a  sole  proprietorship 
to  a  corporation  follow  the  same  principles  as  those  here  given  for  the 
incorporation  of  a  partnership. 

The  following  exercise  is  suggested  for  a  drill  in  converting  the  books 
of  a  sole  proprietorship  or  a  partnership  to  those  of  a  corporation. 

Exercise  86.  Conversion  into  a  Corporation 

1.  C.  W.  Williams  is  the  sole  owner  of  a  manufacturing  plant.  He 
has  assets  and  liabilities  as  follows : 


Assets 


Cash 

$5000 

Machinery 

6000 

Real  Estate 

1000 

Building 

4000 

Raw  Material 

5000 

Accounts  Receivable 

2000 

Liabilities 

Accounts  Payable 

$7000 

He  decides  to  join  with  E.  B.  Monroe,  H.  L.  Hinnan,  and  W.  E. 
Rollins  in  the  formation  of  a  corporation,  to  be  called  The  Williams 
Co.  The  capital  stock  is  to  be  $70,000,  divided  into  700  shares  at 
$100  each,  of  which  each  of  the  incorporators  is  to  have  170  shares. 
The  balance,  20  shares,  is  to  be  held  in  reserve,  unissued.  The  business 
is  to  be  continued  at  the  old  location  of  C.  W.  Williams  and  a  new 
set  of  books  is  to  be  opened.  Make  the  necessary  entries  to  close  the 
books  of  C.  W.  Williams  and  to  open  those  of  the  corporation. 


482 


PRINCIPLES  OP  ROOKKEEPING 


2.  J.  W.  Ball  is  the  owner  of  a  wagon  manufactory  located  at 
492  Causeway  St.  A  statement  just  made  exhibits  the  assets  and 
liabilities  as  follows : 


Assets 


Real  Estate 

$1000 

Building 

4000 

Machinery 

6000 

Raw  Materials 

5000 

Patent  Rights 

2000 

Finished  Products 

2000 

Accounts  Receivable 

3000 

Liabilities 

Accounts  Payable 

$4000 

Notes  Payable 

5000 

He  decides  to  join  with  C.  W.  Henry,  B.  H.  Robbins,  and  W.  E. 
Law  in  the  formation  of  a  corporation,  under  the  name  of  the  Ball 
Wagon  Co.  The  capital  stock  is  to  be  $68,000,  divided  into  680  shares 
of  $100  each,  of  which  each  of  the  incorporators  is  to  have  160  shares. 
J.  W.  Ball  is  to  receive  160  shares  of  paid-up  stock  for  his  interest  as 
above.  The  balance,  40  shares,  is  to  be  held  in  reserve,  unissued. 

The  business  is  to  be  continued  at  the  old  location  of  J.  W.  Ball, 
and  a  new  set  of  books  is  to  be  opened.  Required,  the  necessary  entries 
to  close  the  books  of  J.  W.  Ball  and  to  open  those  of  the  corporation. 

C.  W.  Henry,  B.  H.  Robbins,  and  W.  E.  Law  pay  for  their  sub¬ 
scriptions  in  cash.  Required,  the  necessary  entry. 

Sell  10  shares  of  the  unsold  capital  stock  referred  to  at  $100  a  share 
to  A.  B.  Miller  on  his  note  at  30  da.  Required,  the  necessary  entries. 

3.  I.  N.  Salsbury,  F.  O.  Gray,  and  E.  W.  Hasten  are  associated  as 
partners  in  a  knitting  mill,  under  the  firm  name  of  Salsbury,  Gray  &  Co. 
Their  investments  are  as  follows : 

I.  N.  Salsbury  $7400 

F.  O.  Gray  7200 

E.  W.  Masten  '  4900 

They  decide  to  reorganize  and  to  incorporate  their  business,  under 
the  name  The  Salsbury  Knitting  Co.  A  capital  stock  of  $30,000,  con¬ 
sisting  of  300  shares  at  $100  per  share,  is  decided  upon.  The  partners 
are  to  receive  paid-up  stock  for  their  respective  interests  and  the  good 
will  as  follows: 


I.  N.  Salsbury 
F.  O.  Gray 
E.  W.  Masten 


80  shares 
80  shares 
65  shares 


INCORPORATING  A  PARTNERSHIP 


483 


Of  the  remaining  capital  stock,  D.  E.  Mosher  subscribes  for  25  shares; 
M.  P.  Keeler,  15  shares;  R.  Cronk,  10  shares.  The  balance  of  the  capi¬ 
tal  stock,  25  shares,  is  to  be  held  in  reserve,  unissued.  A  statement  of 
the  present  assets  and  liabilities  has  been  submitted  by  the  old  partners, 
and  is  accepted  by  the  corporation.  This  statement  is  as  follows : 


Assets 

Accounts  Receivable  $4000 

Raw  Material  3000 

Machinery  3000 

Real  Estate  1000 

Building  5000 

Cash  2700 

Finished  Product  '  2900 

Liabilities 

Accounts  Payable  $1600 

Notes  Payable  500 


A  new  set  of  books  is  to  be  opened  by  the  corporation.  Required^ 
the  necessary  entries  to  close  the  partnership  books  and  to  open  the 
books  of  the  corporation. 

4.  Jackson  &  Johnson,  trading  in  partnership  and  sharing  profits 
and  losses  in  proportion  to  three  fourths  and  one  fourth,  respectively, 
sold  their  business  to  a  corporation,  Law  &  Co.  The  capital  stock 
of  Law  &  Co.  is  $56,000. 

The  financial  statement  of  Jackson  &  Johnson  appeared  as  follows: 


Assets 


Equipment  * 

$10000 

Furniture  and  Furnishings 

3250 

Mdse.  Stock 

37500 

Accounts  Receivable 

12500 

Notes  Receivable 

2500 

Cash  on  deposit 

3000 

#68750 

Liabilities 

Accounts  Payable 

18750 

Proprietary  Interest 

Jackson,  Investment  $30000 

Johnson,  Investment  20000 


$50000 


484 


PRINCIPLES  OF  BOOKKEEPING 


The  purchasers  agreed  to  give  $  10,000  for  the  good  will,  but  would 
take  over  the  merchandise  stock  at  only  $35,000  and  the  equipment 
at  $8500. 

a.  Give  the  journal  entries  for  closing  the  books  of  Jackson  & 
J  ohnson. 

b.  Give  the  journal  entries  for  opening  the  books  of  Law  &  Co. 

Note.  The  entry  to  record  the  loss  suffered  through  the  assets  being  taken  over 
at  reduced  amounts  is  as  follows : 


Profit  and  Loss  on  Sale  of  Business 

4000 

Equipment 

1500 

Merchandise  Stock 

2500 

To  record  loss  on  assets  sold  to  Law  &  Co. 

The  division  of  the  amount  received  for  the  good  will  need  not  necessarily 
be  recorded  on  the  partnership  books.  If  it  is  desired  to  record  it,  the  entry  is : 


Good  Will 

Profit  and  Loss  on  Sale  of  Business 

To  record  the  amount  received  for  the  good 
will  on  the  sale  of  the  business  to  Law  &  Co. 


10000 


10000 


The  net  profit  from  the  sale  of  the  business  is  divided  between  Jackson  & 
Johnson  in  the  agreed  proportion. 


5.  Hatch  and  Richardson,  equal  partners,  decided  to  incorporate  on 
Dec.  31,  19 — .  At  that  date  their  financial  statement  was  as  follows : 


Assets 


Real  Estate  and  Improvements 

$25000 

Notes  Receivable 

10000 

Accounts  Receivable 

20000 

Mdse.  Inventory 

20000 

Cash 

2500 

Total  Assets 

Liabilities 

Notes  Payable 

$13500 

Accounts  Payable 

20000 

Total  Liabilities  33500 

Proprietary  Interest 

Hatch,  Investment  $22000 

Richardson,  Investment  22000 

$44000 

A  corporation,  the  Hatch  &  Richardson  Co.,  was  organized  with  a 
capital  stock  of  $100,000.  With  the  exception  of  real  estate  and 


INCORPORATING  A  PARTNERSHIP 


485 


improvements  being  valued  at  $35,000*  the  assets  and  the  liabilities 
were  taken  over  by  the  corporation  at  book  values.  Hatch  and  Richardson 
were  to  receive  $26,000  for  the  good  will  of  the  business.  The  entire 
payment  to  Hatch  and  Richardson  was  to  be  made  in  capital  stock  of 
the  new  corporation.  Cash  subscriptions  were  received  as  follows : 

Eaton  $5000 

Robinson  10000 

J  enkins  5000 

A  new  set  of  books  is  to  be  opened. 

a.  Prepare  the  closing  journal  entries  for  the  partnership  of  Hatch 
and  Richardson. 

b.  Prepare  the  opening  entries  for  the  Hatch  &  Richardson  Co. 


CHAPTER  XLII 


INTRODUCTION  TO  COST  ACCOUNTING 

Cost  accounting  is  one  of  the  most  complex  divisions  of  accounting. 
This  subject  merits  not  only  a  thorough  study  of  all  the  theoretical 
points  involved  but  also  a  knowledge  of  the  various  methods  of  record¬ 
ing  data  in  the  system  that  may  be  designed. 

Cost  accounting  cannot  be  mastered  by  learning  the  mechanical 
routine  of  any  one  special  method,  but  attention  should  be  given  to  all 
methods  likely  to  be  found  in  use.  For  this  reason  no  attempt  is  made 
in  the  following  chapter  to  go  into  the  subject  in  detail.  The  subject 
in  general  is  treated  summarily,  but  those  portions  with  which  the  cost 
clerk  should  be  familiar  are  more  fully  explained. 

Why  a  Cost  System  is  Necessary.  The  general  financial  accounts 
record  the  transactions  of  a  business  with  the  general  business  public. 
Operating  and  financial  statements  compiled  from  such  accounts  reveal 
the  result  of  the  operations  of  the  period  and  the  financial  status  at 
the  close  of  the  period,  respectively.  The  manufacturing  section  of  the 
operating  statement  contains  the  total  expenses  incurred  during  the 
period  in  manufacturing  the  product,  the  trading  section  shows  the  total 
expenses  incurred  in  disposing  of  the  sales  of  the  period,  and  the 
administration  section  contains  the  expenses  incurred  for  the  general 
administration  of  the  business.  However,  the  total  cost  of  manufacturing 
the  product  for  the  period  under  review  is  not  what  is  needed,  but 
rather  the  cost  of  the  product  completed  and  delivered,  for  such  costs 
are  the  only  ones  which  should  be  offset  against  the  sales  in  determining 
the  gross  profit  or  loss  for  the  period.  No  manufacturer  should  expect 
that  the  sales  of  a  period  would  return  a  profit  when  the  cost  of 
products  not  completed  or  delivered  are  included  in  the  cost  of  the 
goods  sold.  The  net  result  of  such  a  system  leads  to  the  adoption  of 
incorrect  business  policies,  based  upon  misleading  figures. 

The  items  of  material  and  labor  may  be  used  to  illustrate  this 
point.  In  many  factories  there  are  usually  orders  in  progress  at  the 
end  of  the  period  which  are  chargeable  with  various  amounts  of 
material,  labor,  and  expense.  Other  orders  may  be  completed  but  not 

486 


INTRODUCTION  TO  COST  ACCOUNTING 


487 


yet  delivered  to  the  customers.  Unless  the  value  of  the  materials  in 
the  goods  in  progress  and  in  completed  orders  is  recognized,  the  sales 
of  the  current  period  are  charged  with  material  which  is  chargeable 
to  a  future  period. 

The  same  criticism  applies  to  labor.  Wages  are  paid  to  factory 
employees  who  may  have  worked  upon  orders  completed  and  delivered, 
orders  completed  but  undelivered,  or  upon  uncompleted  orders.  The 
sales  of  the  period  should  be  charged*  only  with  the  labor  upon  com¬ 
pleted  and  delivered  orders,  and  the  other  labor  costs  should  be  segre¬ 
gated  so  that  they  may  be  charged  against  the  sale  of  some  future  period. 

It  should  be  apparent  that  the  Manufacturing  account  should  be 
charged  only  with  the  cost  of  items  entering  into  the  orders  completed 
and  delivered,  and  the  means  by  which  this  may  be  accomplished  is 
through  the  operation  of  a  cost  system. 

The  operating  statement  contains  totals  only,  and  does  not  show 
the  cost  of  individual  orders  which  may  have  passed  through  the 
factory  during  the  fiscal  period.  The  net  result  of  the  operating  state¬ 
ment  may  be  a  profit,  yet  the  management  cannot  tell  which  jobs 
were  handled  at  a  profit  and  which  at  a  loss.  Perhaps  a  small  profit 
was  made  upon  every  order  that  was  sold ;  perhaps  great  losses  were 
suffered  on  some  orders,  while  on  others  such  large  profits  were  made 
that  the  net  result  of  the  operations  for  the  period  was  a  gain. 

Such  an  unsystematic  and  unwise  method  is  unfair  to  customers  and 
competitors,  for  selling  prices  on  all  products  should  be  based  on  cost 
plus  a  fair  profit.  Customers  suffer  in  trading  with  concerns  which 
do  not  have  cost  systems  through  being  overcharged  or  undercharged, 
for  seldom  can  a  proper  price  be  fixed  by  guess.  Competitors  also 
suffer  through  having  to  compete  with  concerns  who,  through  lack 
of  knowledge  of  costs,  are  demoralizing  business  by  selling  many 
products  below  the  actual  cost  of  production.  The  management  of 
the  business  itself  suffers  in  that  it  is  unable  to  know  the  lines  which 
the  factory  is  able  to  produce  at  the  greatest  profit.  Such  lines  are 
obviously  the  ones  which  should  be  pushed,  and  the  nonprofitable  lines 
should  be  placed  upon  a  profit-producing  basis  or  perhaps  eliminated. 

Definition.  A  cost  system,  therefore,  furnishes  a  basis  for  recording 
the  operations  of  the  business  within  itself,  with  a  view  of  determining 
the  cost  of  the  product  being  manufactured. 

Types  of  Cost  Systems.  There  are  several  different  types  of  cost 
systems,  but  the  two  in  most  common  use  are  known  as  the  order  type 
and  the  process  type.  Under  the  order  type  costs  are  kept  according 
to  order  number,  while  under  the  process  type  costs  are  kept  according 


488 


PRINCIPLES  OF  BOOKKEEPING 


to  the  factory  processes  or  departments  and  then  assembled  to  find 
the  total  cost  of  the  manufactured  product. 

Kinds  of  Cost  Systems.  Cost  systems  are  of  two  kinds,  —  cost-finding 
systems  and  cost-accounting  systems. 

Cost-Finding  Systems.  These  systems  consist  of  detailed  records  kept 
upon  forms  which  enable  the  management  to  ascertain  the  cost  of  the 
product,  but  they  do  not  allow  a  basis  for  proving  that  the  costs  are 
correct.  The  cost-finding  system  supplements  the  financial-accounting 
system ;  but  the  former  is  based  upon  single  entry,  while  the  latter  is 
based  upon  double  entry.  The  use  of  cost-finding  systems  should  not 
be  encouraged  by  accountants  for  the  reason  that  the  only  satisfactory 
system,  the  one  which  will  ultimately  be  used,  is  the  cost-accounting 
system,  which  is  based  upon  double  entry  and  is  capable  of  proof, 
analysis,  and  interpretation. 

A  cost-finding  system  may  be  changed  into  a  cost-accounting  system 
by  supplying  the  proper  accounting  basis. 

Cost-Accounting  Systems.  At  least  four  different  types  of  cost¬ 
accounting  systems  are  used  sufficiently  in  this  country  to  warrant 
summary  descriptions  being  given.  Detailed  descriptions  and  problems 
illustrating  the  application  of  these  principles  form  the  basis  of  a 
course  of  study  in  cost  accounting,  which  is  not  treated  in  this  text. 

Where  only  one  grade  of  one  commodity  is  manufactured  or  pro¬ 
duced,  the  cost  of  production  may  be  divided  by  the  number  of  the 
units  in  order  to  obtain  unit  cost.  Such  a  cost  system  may  be  called 
the  accounting-cost  system.  It  is  the  simplest  type  of  a  cost-accounting 
system ;  but  its  use  is  limited,  since  the  greater  number  of  industries 
produce  not  only  more  than  one  grade  of  a  single  commodity  but  also 
many  different  commodities. 

A  second  cost-accounting  system  is  based  upon  the  use  of  a  controll¬ 
ing  account  kept  in  the  general  ledger  which  controls  a  subsidiary 
cost  ledger.  The  controlling  account  may  be  called  the  Cost  account, 
Factory  account,  Production  account,  or  Manufacturing  account,  depend¬ 
ing  upon  whether  the  subsidiary  ledger  is  called  the  cost  ledger,  factory 
ledger,  production  ledger,  or  manufacturing  ledger.  All  these  terms  refer 
to  one  and  the  same  thing,  —  a  general-ledger  account  which  controls 
a  ledger  containing  detailed  cost  by  orders,  departments,  or  processes. 

When  the  cost-  and  financial-accounting  systems  are  combined,  the 
system  is  known  as  the  interlocked  accounting  system.  Under  this 
system  the  cost  accounts  appear  in  the  general  ledger,  and  of  neces¬ 
sity  they  must  be  kept  up  to  date  if  the  operating  and  the  financial 
statements  are  to  be  obtained. 


INTRODUCTION  TO  COST  ACCOUNTING 


489 


The  fourth  kind  of  a  cost-accounting  system  in  use  is  called  the 
parallel  system.  The  cost  system  is  separate  and  distinct  from  the  gen¬ 
eral  financial  system,  and  yet  appropriate  data  are  given  to  the  admin¬ 
istrative  office  at  the  end  of  a  period  to  permit  an  accurate  cost  of 
manufacture  being  obtained  for  the  period.  Such  a  cost-accounting 
system  parallels  the  financial  system  as  far  as  factory  accounts  are 
concerned  and  involves  the  keeping  of  distinct  and  separate  factory 
records,  —  one  set  in  the  office,  another  at  the  factory. 

Selling  Price.  The  selling  price  of  any  manufactured  commodity 
consists  of  six  elements: 

1.  Material  4.  Selling  Expense 

2.  Labor  5.  Discount  on  Sales 

3.  Manufacturing  Expense  6.  Profit 

The  way  in  which  these  six  elements  enter  into  the  selling  price 
may  be  seen  from  the  following  outline : 

Selling  Price 

1.  Factory*  Cost 

(1)  Prime  Cost 

a.  Material  * 

b.  Productive  Labor 

(2)  Manufacturing  Expenses 

2.  Selling  Expenses 

3.  Discount  on  Sales 

4.  Profit 

The  student  should  be  familiar  with  the  terms  employed  in  this  out¬ 
line.  Prime  cost  always  refers  to  the  cost  of  materials  plus  the  cost  of 
labor  spent  directly  upon  the  commodity.  Factory  cost  is  obtained  by 
adding  the  manufacturing  expenses  to  prime  cost  and  thus  represents 
the  cost  of  the  article  completed  and  ready  for  the  market.  The  selling 
expenses,  the  discount  on  sales,-  and  the  desired  profit  must  be  con¬ 
sidered  before  the  actual  selling  price  is  obtained. 

Each  of  the  elements  is  considered  in  the  following  pages: 

Material.  Material  includes  all  which  is  a  part  of  the  manufactured 
commodity.  It  may  include  raw  material  and  materials  which  have 
been  either  partly  finished  or  entirely  completed  by  other  manufac¬ 
turers.  Its  value  is  the  important  point  to  consider  in  accounting  for 
costs,  although  its  physical  form  or  condition  is  taken  into  considera¬ 
tion  in  devising  methods  for  caring  for  the  material  before  it  enters 
into  the  manufactured  product. 


490 


PRINCIPLES  OF  BOOKKEEPING 


Materials  used  in  the  process  of  manufacture  are  frequently  called 
stores,  the  room  in  which  they  are  kept  is  referred  to  as  the  stores 
room,  the  person  in  charge  of  the  stores  room  is  known  as  the  stores- 
keeper,  and  his  assistants  are  called  stores  clerks. 

Materials  which  are  directly  consumed  in  the  manufacture  of  a  com¬ 
modity  are  called  direct  materials.  For  example,  lumber,  glue,  hard¬ 
ware,  and  varnish  are  among  the  direct  materials  which  enter  into  the 
manufacture  of  furniture.  Direct  materials  are  charged  directly  to  the 
order  or  process  of  which  they  become  a  part  after  they  have  been 
measured,  weighed,  and  valued. 

Materials  which  are  consumed  in  a  factory  but  which  do  not  enter 
directly  into  a  manufactured  article  are  called  indirect  materials.  For 
example,  oils  and  other  machinery  supplies  are  consumed,  but  their  cost 
cannot  be  chargeable  to  any  one  order  or  process.  The  cost  of  indirect 
materials  is  considered  an  item  of  manufacturing  expense. 

The  cost  of  the  material  used  in  manufacturing  is  the  cost  of  the  ma¬ 
terial  when  ready  to  be  used,  and  therefore  includes  the  following  items: 

Invoice  Stores-room  Expense 

Freight,  Express,  and  Cartage  Purchasing  Department  Expense 

The  invoice  cost  is  the  price  at  which  the  material  is  billed,  less 
any  discount  which  may  be  allowed  for  prompt  payment.  The  freight, 
express,  or  cartage  on  the  material  includes  all  the  carrying  and  dray- 
age  charges  on  a  shipment  up  to  the  time  it  is  received  at  the  factory. 
Stores-room  expenses  include  stores-room  rent,  heat,  light,  power,  insur¬ 
ance  and  taxes  on  stores,  wages  of  storeskeepers  and  stores  clerks, 
depreciation  and  repairs  of  stores  equipment,  and  any  other  expenses 
which  are  incurred  in  storing  the  materials  until  they  are  needed  in 
the  factory.  Each  lot  of  material  withdrawn  for  factory  use  is  charge¬ 
able  with  a  portion  of  the  stores-room  expense,  determined  upon  a 
percentage  basis  of  cost,  weight,  or  volume  of  materials. 

The  purchasing-department  expenses  include  all  expenses  of  the 
department  intrusted  with  the  duty  of  buying  materials.  Such  expenses 
are  usually  apportioned  to  the  purchases  on  a  percentage  basis,  the 
same  as  stores-room  expenses  —  by  cost,  weight,  or  volume. 

The  forms  ordinarily  used  in  a  factory  to  record  data  relative  to  the 
purchase,  receipt,  storage,  and  consumption  of  materials  are  as  follows : 

Purchase  requisition  Stores  requisition 

Purchase  order  Stores  credit  slip 

Report  of  materials  received  Stores  distribution  blank 

Stores  ledger 


INTRODUCTION  TO  COST  ACCOUNTING 


491 


All  forms  used  in  cost  systems  should  be  numbered  consecutively, 
and  each  must  be  accounted  for.  It  is  the  general  practice  to  use  dif¬ 
ferent  colored  stock  for  the  several  copies  of  a  form,  to  facilitate  quick 
handling  and  ready  reference. 

The  purchase  requisition  is  a  form  issued  by  the  storeskeeper  to  the 
purchasing  department.  It  is  made  in  duplicate.  The  original  is  sent 
to  the  purchasing  department,  and  the  duplicate  is  retained  by  the 
storeskeeper  and  filed  numerically  for  reference.  The  following  illus¬ 
tration  contains  the  data  usually  found  on  a  purchase  requisition. 


No. 

To  Purchasing  Agent: 

Date 

Please  order  the  following  goods  : 

Quantity 

Unit 

Articles 

Date 

Wanted 

Order 

Number 

For  Dept.  By 

Storeskeeper 

PURCHASE  REQUISITION 


After  the  purchasing  department  has  verified  the  need  for  the  ma¬ 
terials  and  has  decided  upon  the  firm  from  whom  they  may  be  most 
advantageously  purchased,  a  purchase  order  is  issued.  The  purchase 
order  may  be  made  in  quadruplicate,  the  original  sent  to  the  vendor, 
the  duplicate  retained  for  the  purchasing-department  files,  the  triplicate 
sent  to  the  stores  room,  and  the  quadruplicate  sent  to  the  receiving 
department.  A  short  carbon  should  be  used  in  writing  the  fourth  copy 
so  that  the  receiving  department  may  not  know  how  many  units  are 
supposed  to  be  in  the  shipment.  The  retained  copies  of  the  purchase 
order  may  be  filed  according  to  number,  date,  vendor,  or  commodity, 
and  not  infrequently  cross  references  are  established  so  that  by  con¬ 
sulting  any  one  index  the  other  data  may  be  obtained.  A  typical 
ruling  of  a  purchase  order  is  shown  in  the  following  illustration  : 


492 


PRINCIPLES  OF  BOOKKEEPING 


The  report  of  materials  received  is  made  out  in  the  receiving  depart¬ 
ment  by  the  clerk  after  counting  the  number  of  units  of  materials  re¬ 
ceived.  The  following  form  shows  a  ruling  for  such  a  report,  which 


The  A.  B.  Co..  REPORT  OF  No. 

Madison,  Wis.  MATERIALS  RECEIVED 

Date 

Order  No. 

From 

Quantity 

Unit 

Articles 

REPORT  OF  MATERIALS  RECEIVED 


should  be  made  in  triplicate.  The  original  should  be  sent  to  the  finan¬ 
cial  accounting  office,  where  it  will  be  checked  with  the  invoice ;  the 


INTRODUCTION  TO  COST  ACCOUNTING  493 

duplicate  should  be  sent  with  the  materials  to  the  stores  room ;  and 
the  triplicate  should  be  retained  in  the  receiving-department  office. 

The  stores  ledger  is  one  of  the  most  important  records  of  materials ; 
in  fact,  it  is  considered  an  essential  of  a  good  cost-accounting  system. 
The  stores-ledger  form,  illustrated  below,  may  be  printed  upon  a  card 
or  a  ledger  sheet.  The  purpose  of  the  ledger  is  to  keep  an  accurate 
record  of  all  materials  received  and  disbursed.  The  difference  between 
these  amounts  should  correspond  to  the  quantity  on  hand.  For  this 
reason  the  stores  ledger  is  frequently  called  a  perpetual  inventory. 
Data  for  the  Received  section  of  the  stores  ledger  are  obtained  by 
the  storeskeeper  from  the  duplicate  report  of  materials  received.  The 
materials  requisition,  described  below,  furnishes  data  which  enables 
the  storeskeeper  to  fill  out  the  several  columns  of  the  Disbursed 
section  of  the  stores  ledger.  The  spaces  to  record  the  minimum  and 
the  maximum  amounts  are  to  contain  the  quantities  below  and  above 
which  the  amount  in  store  should  not  be  reduced  nor  increased.  The 
minimum  and  the  maximum  amounts  are  determined  for  each  com¬ 
modity  by  the  quantities  needed  so  that  production  will  not  be  re¬ 
tarded  by  the  plant  capacity,  by  the  nearness  to  market,  by  the  time 
required  for  delivery,  or  by  market  conditions.  The  normal  is  the  aver¬ 
age  which  experience,  in  view  of  prevailing  conditions,  shows  it  is  best 
to  have  on  hand.  Stores  ledgers  may  be  kept  either  by  commodity  name 
or  by  number.  Certain  combinations  of  these  methods  are  also  used. 


Binding 

Margin 

The  A.  B.  Co.  Sheet  No. 

Madison,  Wis.  STORES  LEDGER  Matena] _ 

Size 

Unit  Mavimiim  Minimum  Normal  .  location 

Received 

Disbursed 

Balance 

Ave. 

Unit 

Price 

Date 

P.  Order 
Number 

Quantity 

Unit 

Price 

Invoice 

Cost 

Freight 

and 

Cartage 

Total 

Cost 

Date 

Req. 

No. 

Quantity 

Price 

Value 

Quantity 

Value 

STORES  LEDGER 


In  some  cost  systems  only  quantities  are  kept  on  the  stores  ledgers, 
no  reference  being  made  to  unit  cost  prices.  In  other  systems  both 
quantity  and  the  several  costs  are  considered  in  arriving  at  the  value 


494 


PRINCIPLES  OF  BOOKKEEPING 


of  the  materials,  obtained  in  the  Balance  section,  and  the  average  unit 
price.  If  costs  are  kept,  the  storeskeeper  receives  them  from  the 
general  accounting  office ;  but  if  quantities  only  are  kept,  the  cost 
department  records  the  value  of  materials  used  when  it  receives  notice 
of  withdrawal  and  consumption. 

The  stores  requisition  is  an  order  drawn  upon  the  storeskeeper  by 
the  foreman  of  a  department,  requesting  the  delivery  of  the  designated 
material  to  the  bearer  of  the  requisition.  The  data  usually  appearing 
upon  such  a  requisition  are  shown  in  the  following  illustration.  This 
requisition  should  be  made  in  duplicate,  the  original  going  to  the 
storeskeeper  and  the  duplicate  retained  for  the  departmental  file. 


Binding  Margin 

stores  requisition  n" 

To  Storekeeper :  ^ate - 

Please  deliver  the  foDowing  materials  to 

Quantity 

Unit 

Description 

Unit 

Price 

Amount 

Entered 
Store  Ledger 

Charge  Order 

Page 

y 

Number 

>/ 

Authorized  by  Delivered  by  Received  by 

Foreman 

STORES  REQUISITION 


The  stores  credit  slip ,  sometimes  called  a  material  returned  slip,  is  a 
form  accompanying  the  return  of  materials  by  departments  to  the  stores 
room.  The  slip  illustrated  on  the  next  page  shows  a  ruling  of  this 
form  which  is  made  in  duplicate,  the  original  being  given  to  the  stores¬ 
keeper  and  the  duplicate  retained  for  the  departmental  files.  These 
slips  enable  the  storeskeeper  to  charge  the  appropriate  accounts  with 
the  commodities  returned,  and  the  departmental  file  supplies  evidence 
of  the  return  which  reduces  the  cost  of  materials  charged  to  the  order 
or  the  process. 

In  many  factories  certain  summaries  or  recapitulations  of  the  stores 
withdrawn  are  made  by  the  storeskeeper.  These  summaries  are  sent 
to  the  cost  department,  where  each  order  or  process  is  charged  with 
the  appropriate  totals  indicated.  The  purpose  of  having  a  stores 


INTRODUCTION  TO  COST  ACCOUNTING  • 


495 


distribution  blank  is  to  decrease  the  labor  involved  in  posting  material 
items  to  the  individual  order  or  process  cost  sheet.  The  summaries 
may  be  made  daily,  weekly,  or  monthly,  according  to  the  conditions 
prevailing  in  the  plant  under  consideration.  A  columnar  ruled  blank 
may  be  used  for  distributing  withdrawn  stores  by  order  numbers  or 
process  departments.  The  columnar  headings  may  be  inserted,  and  the 
totals  of  the  columns  posted  to  the  proper  accounts. 

Labor.  The  labor  employed  in  a  factory  is  of  two  kinds,  productive 
and  nonproductive.  Productive  labor  is  that  spent  directly  upon  the 
jobs  or  processes  passing  through  the  factory,  and  nonproductive  labor 
is  that  made  necessary  by  the  operation  of  the  plant,  but  not  expended 
directly  upon  the  article  being  manufactured.  The  labor  of  the  work¬ 
men  upon  the  jobs  or  processes,  at  bench  or  machine,  is  therefore  pro¬ 
ductive,  while  the  labor  of  the  superintendent,  the  foreman,  the  janitor, 
or  the  repair  men  is  nonproductive. 

Among  the  various  systems  of  paying  productive  labor  are  the  day 
wage,  piece  rate,  premium  rate,  task,  differential  piece  rate,  efficiency, 
bonus,  and  profit-sharing  methods,  as  well  as  many  modifications  and 
combinations  of  these  systems.  Nonproductive  labor  is  usually  paid  a 
monthly  or  a  weekly  wage.  A  detailed  description  of  the  methods  of 
paying  productive  labor  is  not  given  in  this  text,  as  the  cost  clerk  is 
concerned  chiefly  with  recording  the  time  spent  by  the  workmen  upon 
orders  in  process  and  with  verifying  the  time  as  charged  to  jobs  with 
the  time  the  workmen  are  in  the  factory. 


496 


PRINCIPLES  OF  BOOKKEEPING 


The  time  spent  by  workmen  upon  orders  in  process  may  be  recorded 
by  hand  or  by  a  time-recording  device  upon  a  daily  time  ticket,  upon 
a  job  time  ticket,  and,  in  some  factories,  upon  the  individual  job-order 
record  itself. 

Regardless  of  the  form  upon  which  the  time  is  recorded,  the  following 
information  should  be  available :  the  date,  the  name,  or  the  number  of 
the  workman,  the  job  number  or  process  worked  upon,  the  time  spent 
upon  the  job  or  process,  and  the  signature  or  initials  of  the  depart¬ 
mental  foreman  attesting  the  accuracy  of  the  record.  Space  should 
also  be  allowed  for  the  extension  of  the  labor  charges,  but  this  is 
usually  done  in  the  cost  department,  where  the  workman’s  unit  rate  is 
multiplied  by  the  units  of  time  spent. 

The  exact  form  of  time  tickets  depends  upon  the  method  of  wage 
payment,  upon  the  method  of  recording  time,  hand  or  machine,  and 
upon  the  sundry  auxiliary  uses  to  be  made  of  the  tickets  in  the  factory. 


DAILY  TIME  TICKET  Da,e - 

Workman's  Name  Dept. 

Kind  of  Work 

Fr-oin 

To 

Time  Spent 

Rate 

Amount 

Job  No. 

s/ 

Total _ 

DAILY  TIME  TICKET 


A  ruling  of  the  daily  time  ticket  is  shown  above.  The  total  of 
the  time  chargeable  to  jobs  should  equal  the  total  time  spent  in* the 
factory.  When  the  daily  time  ticket  is  used,  it  is  necessary  for  the  cost- 
department  employees  to  post,  to  the  respective  order,  the  time  charge¬ 
able  to  each  job  or  process.  The  daily  time  tickets  may  then  be  filed 
according  to  the  date  or  according  to  the  workman’s  name  or  number. 
Very  often  several  men  may  be  working  on  the  same  job,  and  in  order 
to  save  posting  details  to  the  job  order,  distributions  by  jobs  are  made 


INTRODUCTION  TO  COST  ACCOUNTING 


497 


on  a  separate  form,  from  which  totals  are  posted  to  the  order  record  at 
the  end  of  a  day,  week,  or  month.  A  columnar  ruled  sheet,  in  which 
the  job  numbers  are  inserted  for  columnar  headings,  may  be  used  for 
this  purpose. 

A  ruling  of  the  job  time  ticket  is  shown  in  the  following  illustration. 
The  total  of  the  time  recorded  on  the  job  tickets  of  a  day  gives  the 
total  time  spent  by  the  workman  in  the  factory.  Generally  a  record  is 
made  of  the  time  and  the  output  of  each  workman,  to  determine  the 
wages  to  which  he  is  entitled.  The  job  tickets  are  filed  in  the  cost 
department  according  to  order  number  or  process.  A  columnar  ruled 
sheet  may  be  used  for  obtaining  totals  to  post  to  the  individual  job- 
order  record.  The  job  ticket  possesses  great  elasticity  and  adaptability 
in  meeting  the  requirements  of  any  particular  cost-accounting  system. 


Dept. 

Jol 

Da 

5  No. 

Workman’s  Name 

ite 

Kind  of  Work 

Began 

Finished 

Time 

Rate 

Amount 

Approved 

Foreman 

JOB  TIME  TICKET 


In  a  few  industries  time  tickets,  either  daily  or  job,  are  kept  for 
machines,  upon  which  one  or  more  men  may  be  employed. 

The  following  form  shows  the  ruling  of  a  job  order  which  sometimes 
accompanies  the  materials  through  the  factory,  and  upon  which  are  re¬ 
corded  all  material  and  labor  charges  by  the  workmen  or  foremen.  Sum¬ 
maries  by  workman’s  name  or  number  may  be  taken  off  the  job-order 
record,  to  determine  the  wages  due  the  workman  and  to  reconcile  the 
time  charged  to  jobs  with  the  time  the  workman  was  in  the  factory. 

In  the  great  majority  of  cost  systems  the  job  order  remains  in  the 
cost  department,  where  the  amounts  of  material  and  labor  charges  are 


498 


PRINCIPLES  OF  BOOKKEEPING 


entered  upon  it  by  the  cost  clerks.  The  file  of  uncompleted  job  orders 
represents  the  value  of  goods  in  progress  throughout  the  factory. 

The  handling  of  labor  records  well  illustrates  the  manner  in  which 
checks  for  accuracy  are  obtained  in  modern  accounting.  The  time  the 
workman  is  in  the  factory  should  agree  with  the  time  charged  to  the  job 
orders,  and  the  amount  of  the  pay  roll  should  agree  with  the  cost  of 
labor  charged  to  job  orders. 

Manufacturing  Expense.  Manufacturing  expense  is  often  referred  to 
as  indirect  expense,  factory  expense,  and  burden.  Manufacturing 


For _  Job  No - 

_  Date  Ordered. 


Description _ To  be  Delivered. 


Materials 

Labor 

Summary 

Date  |  Dept.  Amount 

Date 

Dept. 

Workman 

1  Amount 

1 

1 

Materials 

Labor 

Mfg.  Expense 

Factory  Cost 

Selling  Expense 
Discount  on  Sales 
Profit 

Sales  Price 

Quoted  Sales  Price 
Profit  or  Loss  on  Est. 

Shipped 

via 

Charged  to  Account 

INDIVIDUAL  JOB  ORDER  RECORD 


expense  includes  indirect  materials,  nonproductive  labor,  and  all  other 
factory  expenses  which  cannot  be  charged  against  the  jobs  direct ;  such 
as  factory  rent,  heat,  light,  power,  depreciation,  insurance,  taxes,  and 
maintenance  charges. 

Generally  the  administrative  expenses  of  a  manufacturing  concern 
are  divided  between  manufacturing  expense  and  selling  expense,  in 
proportion  to  the  benefit  each  receives  from  the  general  administration 
of  the  business. 

The  great  problem  in  cost  accounting  is  to  determine  the  proper 
expense  chargeable  to  the  factory  and  to  distribute  the  resulting 


INTRODUCTION  TO  COST  ACCOUNTING  499 

manufacturing  expense  over  the  manufactured  product  in  such  a  way 
as  to  reveal  the  true  cost  of  production. 

Several  different  methods  of  distributing  manufacturing  expense  are  in 
use,  each  one  adapted  to  certain  conditions  which  must  prevail  in  order 
that  satisfactory  results  may  be  obtained  from  the  use  of  the  method. 
Among  the  different  bases  and  methods  that  are  used  in  different  in¬ 
dustries  for  distributing  manufacturing  expense  are  the  productive- 
labor  cost  basis,  the  productive-labor  hour  basis,  the  productive-labor 
and  material  cost  basis,  the  scientific  machine-rate  method,  the  fixed 
machine-rate  method,  the  direct  departmental  expense  basis,  and  the 
tonnage  basis.  A  study  of  the  method  of  calculation,  use,  advantages, 
and  disadvantages  of  each  of  these  plans  is  a  most  important  part  of 
a  course  in  cost  accounting,  and  is  not  included  in  this  text. 

To  illustrate  the  application  of  one-percentage  method,  assume  that 
the  expense  is  distributed  on  the  productive-labor  cost  basis,  and  that 
the  manufacturing  expense  percentage  for  the  current  period  is  given  as 
50%.  For  every  dollar  charged  to  an  order  for  labor,  50%  of  the  amount 
should  be  added  as  that  portion  of  the  total  manufacturing  expense 
which  each  order  should  bear. 

Selling  Expenses.  Selling  expenses  include  all  expenses  incurred  in 
marketing  the  manufactured  product.  Among  such  items  are  sales¬ 
men’s  salaries,  commission  and  expenses,  salesroom  rent,  heat  and  light, 
depreciation  on  salesroom  furniture  and  furnishings,  maintenance  of 
salesroom  equipment,  credit-department  expenses,  bad  debts,  shipping- 
room  expenses,  delivery  expense,  a  portion  of  the  administrative  charges, 
and  all  other  items  connected  with  selling  the  product.  While  in  some 
industries  it  is  possible  and  practicable  to  charge  the  selling  expenses 
directly  against  the  order  for  which  they  are  incurred,  selling  ex¬ 
penses  are  usually  distributed  over  the  entire  sales  on  a  percentage 
basis.  To  illustrate,  assume  that  the  total  sales  are  $200,000  and  the 
selling  expenses,  $30,000.  Since  the  selling  expenses  are  15%  of 
the  sales,  this  percentage  is  taken  into  consideration  in  determining 
the  selling  price  of  the  product. 

Discount  on  Sales.  Discount  on  sales  is  an  amount  considered  in  fixing 
the  selling  price  of  an  article  so  that  if  the  customer  takes  advantage 
of  the  discount  offered  for  prompt  payment,  the  manufacturing  profit 
of  the  seller  is  not  thereby  reduced.  In  present-day  accounting  methods, 
the  Discount  on  Sales  account  is  considered  as  a  financial  expense,  a 
loss  suffered  through  a  customer  paying  his  bill  within  the  specified 
time.  However,  few  manufacturers  knowingly  grant  cash  discount  and 
suffer  the  loss  themselves  through  reduced  profits. 


500 


PRINCIPLES  OF  BOOKKEEPING 


Profit.  Profit  is  the  amount  which  a  manufacturer  desires  to  gain 
by  selling  an  article,  and  is  usually  referred  to  in  terms  of  percentage. 
To  illustrate,  a  manufacturer  may  say  he  desires  to  make  10%  profit, 
which  means  that  the  selling  price  of  an  article  should  be  such  an 
amount  as  will  yield  this  percentage  of  profit  after  deducting  the  factory 
cost,  the  selling  expenses,  and  the  discount  on  sales.  The  calculation 
of  the  price  at  which  a  manufactured  article  should  be  sold  to  return 
a  desired  profit  may  be  illustrated  from  the  following  facts  regarding 
Job  No.  10  just  completed  in  the  factory  : 

The  material  cost  is  $50  ;  labor  cost,  $75  ;  the  manufacturing  expense 
is  calculated  at  50  %  of  the  labor  cost ;  the  selling  expenses  are  figured 
at  15%  of  the  sales  price;  8%  sales  discount  is  to  be  allowed  for  the 
payment  of  the  bill  within  30  da. ;  and  a  profit  of  10%  on  sales  price 
is  desired. 


Job  No.  10 


Material  Cost 

#50. 

Labor  Cost 

75. 

Prime  Cost 

#125. 

Manufacturing  Expense 

37.50 

Factory  Cost 

$162.50 

Selling  Expenses 

33.85 

Discount  on  Sales 

6.77 

Profit 

22.57 

Selling  Price 

#225.69 

Note.  Selling  price  minus  (selling  expenses  plus  discount  on  sales  plus  profit) 
equals  factory  cost;  that  is,  100%  —  (15%  +  3%  +  10%)  =  72%.  Hence  $162.50  (factory 
cost)  is  72%  of  the  selling  price,  which  is  therefore  $225.69. 


INDEX 


PAGE 

Adjusting  entries . 442 

Authorized  capital  stock . 421 

Bonds,  corporation 

date  of  maturity . 438 

definition . 437 

interest .  437,  438 

recording  the  sale  of . 438 

redemption . 438 

security  for  payment . 437 

sinking  fund .  439-440 

Book  value . 422 

Burden,  distribution  of,  in  cost  system, 

498,  499 

Business  forms,  Set  IX  ....  456-458 

By-laws . 418 


Capital  stock 


PAGE 

Discount  on  sales . 499 

Dividend  book . 428 

Dividends 

cash . 434 

defined . 434 

from  what  payable . 435 

how  declared . 435 

stock . 435 

to  whom  payable . 436 

Domestic  corporation  laws  .  .  .  .  .  418 

Foreign  corporation  laws . 418 

Good  will  in  incorporation  of  partner¬ 
ship  .  479-481 

Illustrations  of  books,  forms  and  rul¬ 
ings 


classes  of . 422 

defined . 421 

names  of  accounts  for  recording, 

429-432 

of  no  par  value . 423 

Cash  dividend . 434 

Charter . 417 

Classification  of  accounts  for  manufac¬ 
turing  corporation  .  .  .  459-461 

Common  stock . 422 

Corporate  administration . 423 

Corporate  organization 

advantages . 419 

disadvantages . 419 

Corporation 

bonds .  437-440 

defined  .  . . 417 

formation  of . 417 

general  powers . 419 

kinds . 418 

names  of . 418 

opening  the  financial  books  of,  429-433 
Cost  accounting,  introduction  to  .  486-500 

Cost  system 

defined . 487 

kinds . 488 

types . 487 

why  necessary . 486 

Coupon  bonds . 437 

Creditors’  ledger . 456 

Cumulative  preferred  stock  ....  422 

Cumulative  voting . 423 

Customers’  ledger . 456 


back  of  voucher . 450 

daily  time  ticket . 496 

dividend  book . 428 

face  of  voucher . 449 

individual  job  order  record  .  .  .  498 

job  time  ticket . 497 

pay  roll . 468 

petty  cashbook . 464 

purchase  order . 492 

purchase  requisition . 491 

report  of  materials  received  .  .  492 

stock-certificate  book . 426 

stock  ledger . 425 

stock-transfer  book . 427 

stores  credit  slip . 495 

stores  ledger . 493 

stores  requisition . 494 

subscription  book  or  list  ....  424 

voucher  and  receipt . 451 

voucher  check . 452 

voucher  register .  454-455 

Imprest  cash  system  .  .  .  455,  464-465 

Incorporating  a  partnership  .  .  477-485 

Incorporating  a  sole  proprietorship  .  481 

Installment  book  or  list . 424 

Installment  ledger . 425 

Installment  payments  and  accounts  .  431 

Installment  scrip  book . 425 

Interest  on  bonds .  437-438 

Job  order  record .  497,  498 

Job  time  ticket . .  .  497 

Journal  voucher .  453-454 


Daily  time  ticket . 496 

Directors . 423 


Labor,  accounting  for,  in  cost  system, 

495-498 


VA 


1 


11 


PRINCIPLES  OF  BOOKKEEPING 


PAGE 

Manufacturing  account . 443 

Manufacturing  expense  ....  498-499 

Manufacturing  set .  449-476 

Material,  accounting  for,  in  cost  sys¬ 
tem  .  489-495 

Minute  book . 424 

Mortgage  bonds  .  .  .  . . 437 

Noncumulative  preferred  stock  .  .  .  422 

Officers . 423 

Operating  statement,  manufacturing 

business .  441-448 

Organization  expense . 432 

Paid-up  capital  stock . 421 

Partnership,  incorporating  a  .  .  477-485 

Pay  roll . 468 

Preferred  stock . 422 

Profit,  manufacturing . 500 

Purchase  order .  491-492 

Purchase  requisition . 491 

Registered  bond . 437 

Report  of  materials  received  ....  492 
Revenue  accounts,  manufacturing  busi¬ 
ness  .  441-448 

Sales  book . 456 

Selling  expenses,  distribution  of,  in  cost 

system . 499 

Selling  price,  elements  of . 489 


PAGE 

Selling  price,  how  to  figure  ....  500 

Selling  price  list . 457 

Share . 421 

Sinking  fund .  439-440 

Sole  proprietorship,  incorporating  a  .  481 

Stock  certificate . 422 

Stock-certificate  book . 425 

Stock  dividend . 435 

Stockholder .  421,  423 

Stock  ledger . 425 

Stock  system .  421-423 

Stock-transfer  book . 427 

Stores  credit  slip . 494 

Stores  distribution  blank  .  .  .  494-495 

Stores  ledger .  493-494 

Stores  requisition . 494 

Subscribed  capital  stock . 421 

Subscription  account .  429-432 

Subscription  book  or  list . 424 

Surplus  account .  434-436 

Time  tickets,  in  cost  system  .  .  496-498 

Trade  discount .  469-470 

Treasury  stock . 421 

Unsubscribed  capital  stock 

account . 431 

defined . 421 

Voucher  register  ........  454-455 

Voucher  system .  449-454 


VA 


